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AMERICAN 
FOREIGN TRADE 



AMERICAN 
FOREIGN TRADE 

The United States as a World Power in 
the New Era of International Commerce 



BY 

CHARLES M. PEPPER 

Former Foreign Trade Adviser to The Department 

or State; Author of "Tomorrow in Cuba': 

"Panama to Patagonia," etc. 




NEW YORK 
THE CENTURY CO. 

1919 






Copyright, 1919, by 
The Century Co. 



Published, August, 1919 



©CI..A529768 



^fc I 



TO 
ALBERT G. ROBINSON 



PKEFACE 

The epoch of the Great War is the beginning of a new 
era in the trade relations, as in the political relations, 
of the world. At the outset the war was viewed merely 
as an interlude in the shifting drama of international 
commerce. But the drama proved to be tragedy. In- 
stead of an interlude, the war became the prelude to 
economic events whose full significance is as yet some- 
what dimly apprehended. 

One of its consequences is the readjustment of their 
industry, trade and finance by all nations. The United 
States in this readjustment has become the world power 
in international commerce. Foreign trade for the first 
time in their history has come to have definite meaning 
to the American people. They have begun to realize its 
place in their own economic system. It may be viewed 
as a phase of domestic policy or in the manifold aspects 
of world policy. 

The larger view invites. It assumes readiness to 
recognize that exports are only one factor in foreign 
trade ; in other words, that this is a question of mutual 
markets. It presumes that the manufacturer in the 
United States is ready to seek the market abroad as a 
primary market. It involves understanding of the 
United States as a lending country with the opportuni- 
ties and the responsibilities that belong to a creditor 
nation. 

Information concerning the resources, the industries, 

vii 



viii PREFACE 

and the trade of the several sections of the world, the 
economic tendencies and fiscal policies of the nations, 
is the basis necessary to an intelligent survey of the 
entire field of foreign commerce. This information I 
have sought to give. For the benefit of the very large 
number of persons who confess a constitutional shyness 
for figures a somewhat sparing use of statistics has been 
made. Yet it may be suggested that the trade statis- 
tician, followed with discrimination, is a much safer 
guide than the political economist with his closet de- 
ductions, or the platform orator with his platitudes and 
generalities. 

Since information rather than the propaganda of 
opinion is the purpose of the pages that follow, a few 
observations may be made on such views as are given 
expression. 

The new era is one of international cooperation in 
finance and trade to a degree undreamed of in the period 
before the Great War. The United States is the com- 
manding factor in this cooperation. But this circum- 
stance does not change the essential conditions under 
which commerce is conducted. Emotional economics 
have no part in international commerce. It deals with 
actualities. International trade benevolence with its 
overlapping bureaucracy is likely to be as demoralizing 
as indiscriminate charity. The world's markets are com- 
petitive and it is good for the world's consumers that 
they should be so. Equally it is good that each nation 
should follow its own bent and should give play to its 
own genius in cultivating these markets. 

Inherited paternalism flowering into governmental 
control, autocratic state participation in trade, finance, 
and industry, may suit some peoples and obtain the 



PREFACE ix 

measure of popular support necessary to incorporate 
them into national policies. Individualism with the 
wide field it affords to initiative and the encouragement 
it gives to the industrial and commercial instinct, may 
prove more suitable to other peoples. It is likewise for 
them to determine their own national policies. That 
the American spirit in developing world trade will be 
strongest under the individual impulse is the author's 
belief. The correctness of this belief may be examined 
and tested in the light of a general survey of the under- 
lying economic and political conditions which affect the 
trade of the several countries of the world. 

CM. P. 
Washington, August, 1919. 



CONTENTS 

CHAPTER I 

PAGE 

"What Foreign Trade Is 3 

Buying as well as selling goods abroad — Nature unchanged by the 
Great War — Imports the measure of world commerce — Comparison of 
quantities and values — New high price levels — Transportation as an 
element — Relation of foreign trade to domestic prosperity — Internal 
factors — United States as an exporting country — Evolution from agri- 
cultural products to manufactured articles — Farm implements and the 
blast furnace — Readjustment of visible and invisible balances — Sig- 
jii£canc9 of change to a creditor nation 

CHAPTER II 
The Farm in Foreign Trade 19 

Economic basis of the new agriculture — Checking the food waste — 
"War-time production — A bushel of wheat per person in export trade 
— Corn and swine — Cattle and meat products — Cotton as a factor in 
foreign business — Insufficiency of production outside the United 
States — Lancashire's futile efforts — The American farmer's prospects 

CHAPTER III 
Machinery and Nationalised Efficiency .... 33 

Standardizing European methods — England's progress in scientific 
effectiveness — American individualized efficiency — Machinery's place in 
industrialism — Development of productive power — Decrease of handi- 
craft — Monotony of machine craft — Welfare projects — Prohibition as 
an economic element — England's drink problem — The industrial woman 
of the world — Status in the United Kingdom — Position in the United 
States — A world reserve factor in production 

CHAPTER IV 
Raw Materials 47 

Iron the blood of industrial nations — Ore resources of the world — 
Distribution in the United States — Coal reserves — Sources of man- 
ganese — Copper and other industrial metals — Petroleum as fuel — 
Where the oil fields lie — Water power as motive force — Raw materials 
of textiles — Great Britain's basis of iron and steel industries — Geo- 
graphical advantages — Points in competition with the United States — 
What Lorraine iron and Sarre coal mean to France 

xi 



xii CONTENTS 

CHAPTER V PAGE 

The Diplomacy of Commerce 62 

The shipwrecked Yankee skipper and mutual bargaining — The cele- 
brated Methuen treaty — Objects sought by England and by Portugal 
— Adam Smith's objections — Disraeli's definition of trade diplomacy — 
Palmerston on the qualities of negotiators — Tariffs modified hj polit- 
ical motives — Concessions by Japan and France to Great Britain — 
Commercial diplomacy in Europe in 1914 — Trade spheres and rap- 
prochements — After the war — Functions of trade diplomacy under the 
new conditions 

CHAPTER VI 
Economic Alliances and Favored Nations .... 74 

Echoes of the Paris Pact of 1916 — Summary of its provisions — 
Inheritance in Peace Settlement — Economic boycotts and trade wars — 
Fiscal policies of the victors — New basis for commercial intercourse — 
Prospective readjustment of favored nation practice — Review of the 
European doctrine — Application to tariffs — Maximum and minimum 
schedules — Germany's conventional tariffs not the work of super- 
men — Methuen principle modernized in the Anglo-Japanese Treaty — 
Industrial instinct of nations — Trend to nationalistic policies in world 
trade 

CHAPTER YII 
British Trade Policy 90 

Edmund Burke's survey of England's trade two centuries 
ago — Before and after the Great War — Imperial preference as an 
outcome — From Joseph Chamberlain to Lloyd George — Protective tariff 
tendencies in war measures — The Budget of 1919 — The self-govern- 
ing colonies — India and the dependencies — The world view — Disguised 
or straightforward protection ? — Government participation in finance 
and commerce — British trading corporation — Direct subsidies — Some 
national traits — British interests the key to British policy 

CHAPTER YIII 
American Trade Policy 110 

Historic background — Commercial character of early diplomacy — 
Treaties after the Civil War — Blaine reciprocity conventions — Dingley 
biU provisions — Cuban reciprocity treaty — Canadian reciprocity agree- 
ment — Adoption of double tariff system — Maximum and minimum ex- 
periment — Repeal by Underwood Act — Review of favored nation prac- 
tice — Reasons for conditional interpretation by United States — Diplo- 
matic correspondence — Cuba and other exceptions — Concluding resume 

CHAPTER IX 
American Trade Policy (Continued) 125 

Adjustment of United States commerce to competitive conditions — 
Flexible and inflexible tariffs — Defects in maximum and minimum pro- 
visions of Payne-Aldrich Act — Amendment proposed by Secretary Knox 
— Rejected retaliatory clause in Underwood bill — Tariff Commission's 
approval of retaliatory schedules — Means of securing equality of 
treatment for American goods — Bargaining tariffs — House of Repre- 
sentatives as source of revenue legislation — Dyes and potash — ^Export 
combinations — The Webb-Pomerene Law — Price lists abroad and at 
home — Export railway rates — Objections to government control — In- 
dividual enterprise in foreign business 



CONTENTS xui 

CHAPTER X PAGE 

The Cargo- Caeriers 140 

Circumstances leading to revival of the merchant marine — The golden 
age of American shipping — Measures for its restoration — The war 
boom — Failure of tariff devices — Shipping Act of 1916 — Supplemental 
legislation — Increased tonnage of the United States — The shipbuilding 
program — Questions of policy — The Seaman's Act — Reaction from Gov- 
ernment ownership — Competition with Great Britain 

CHAPTER XI 

Continental Europe and the United States . . . 153 

Vital economic changes — Factors in France's industrial reconstruc- 
tion — Colonial commerce — Dependence on American capital — Fiscal re- 
lations with the United States — Germany's subtracted raw materials — 
Melting away of Naumann's Mid-Europe dream — Past and prospective 
trade with the United States — Importance of copper and cotton — 
Austro-Hungarian remnants — Belgium's rehabilitation — Italy's terri- 
torial expansion and industrial ambition — Import of capital — Scan- 
dinavian group — Spain and other countries 

CHAPTER XII 
Russia and the Near East 168 

Constantinople as an international mart — The Black Sea a world 
lake — Jugo-Slavia and the Adriatic — Bulgaria and Rumania — No 
Balkan Customs Union — Greater Greece — American enterprise in 
Turkey — Russian economic units — Stirvey of the whole — Commerce of 
the past — Trade relations with the United States — Territorial sub- 
traction — Agricultural and mineral resources that remain — Siberia's 
status — ^Foreign capital the hope of the future 

CHAPTER XIII 
Economic South America 183 

The Southern Continent a world market — Export taxes a Spanish 
colonial inheritance — Limited resources for manufactures — ^Agricul- 
tural and mineral products the source of purchasing power — Brazil's 
rubber and coffee — Iron ore and manganese — Decentralized fiscal policy 
— Argentina's grain and lifestock — Lack of minerals — Uruguay and 
Paraguay — Chile's copper and nitrates — Protective tariff tendencies — 
Peru's varied products — Protective and export duties — Bolivia and 
Ecuador — The Caribbean region 

CHAPTER XIV 
South America as a Market for Europe 200 

Salient geographical aspects — Interchange among the several coun- 
tries — Ocean routes to the old world — Panama Canal — Racial ties 
with Europe — Immigration from the Mediterranean countries — French 
intellectual influence a trade factor — Spain and Italy — Reasons for 
England's primacy — A century's normal growth — British investments 
— Germany's methods — Teutonic colony in Brazil unimportant — 
Market in other countries not lost — Tragedy of Belgium's commerce — 
Europe's prospects 



xir CONTENTS 

CHAPTER XV PAGE 

South America as a IVIarket for the United States . 214 

Aspirations from Clay to Blaine — Trade not hampered by tariff 
policy of the United States — Brazilian preference — Analysis of gen- 
eral commerce — Nature of increase during the war — Shift from 
Europe — Permanent and temporary gains — Character of after-the- 
war business — Causes of adverse and favorable balances — Basis of 
future growth — Loans and investments — Development enterprises — 
What a billion dollars invested in South America will mean 

CHAPTER XVI 
Economic Destiny in the Caribbean 232 

What the purchase of the Danish Islands foreshadows — The Carib- 
bean crescent as an economic curve — Cuba's sugar cane and tobacco 
— Porto Rico's coffee and sugar — British Possessions — Jamaica an 
isolated unit — Proposed Canadian- West-Indian Federation — Trade 
Agreement of 1913 — Panama and Central America — Bananas and 
coffee — Foreign investments — Economic aspect of increased produc- 
tiveness in the Caribbean area — Influence of the United States — Posi- 
tive national policy — The protectorates — Nicaragua Treaty — Benev- 
olent coercion — Santo Domingo's objection — Significance of the 
Haitian treaty — Promise of stability and order — Future commerce 

CHAPTER XYII 
Canada, the Nation to the North 248 

War debt and peace resources — Depth of national spirit — Relation 
of natural resources to trade — Fisheries and forest — Mineral wealth 
— Wheat fields of the northwest — Other crops — Reasons for daring rail- 
way ventures — Basis of industrial development — Iron and steel mills 
— Fiscal system and preferential tariff — Pre-War commerce with 
Europe — After-the-war prospects — Trade relations with the United 
States — Reasons for rejecting the reciprocity agreement — Close business 
intercourse in the future 

CHAPTER XYIII 
Japan and Mutual Markets 265 

New riches — Herbert Spencer's rejected advice — Gains from western 
civilization — What the island power is — Sparse agricultural resources 
— Nationalization of raw materials — Political evolution — Winning of 
economic independence — Fiscal policy — War prosperity — Fundamen- 
tals of future commerce — Trade relations with the United States — 
The Knox Treaty — Questions of the Pacific 

CHAPTER XIX 
China and the Commerce of the Pacific .... 277 

Economic definition — Mineral resources — Nature of foreign trade — 
Small volume — Relations with other countries — John Hay's open door 
— Root-Takahira Declaration — Lansing-Ishii Agreement— China's own 
statement — Japan's overlordship — Outcome at Peace Conference — 

Bankers' loans — Influence on material development — Fiscal policy 

Economic independence the acid test for the Great Powers — United 
States as an Interested Friend 



CONTENTS XV 

CHAPTER XX PAG« 

Investments Abroad 291 

Trade that follows the export of capital — Fundamental changes as a 
consequence of the war — Review of practice in the past — Extraterri- 
torial character of branch factories — State Department formula re- 
garding loans and development enterprises — Popular prejudice against 
claims — Experiences in Spanish-American countries — Lack of continu- 
ous national policy — The Chinese incident — President Wilson's reversal 
— Principle of the international consortium — The world as the field of 
American investments 

CHAPTER XXI 
The American Business Man 307 

Relation to the government changed by the war — Causes of aloofness 
— Distrust of bureaucracy — Why he does not come to Congress — Law- 
yer politicians equally ignorant of international questions — Some exam- 
ples of business ignorance — Sporadic foreign trade forays — Applying 
the remedy — Success of the big concerns — Coordination with the gov- 
ernment — Cooperation in selling abroad — Educational factors — World 
commerce as the business of the United States 

APPENDIX 

A. Reciprocity and Retaliatory Tariff Provisions . 322 

1. McKinley Act. 

2. Dingley Act 

3. Proposed Knox Amendment 

4. Rejected provisions of Underwood Bill 

B. Text of Haitian Fiscal Protectorate Treaty . . 332 

C. China and the Pacific 336 

1. Secretary Hay's Open Door Letter 

2. Root-Takahira Declaration 

3. Lansing-Ishii Agreement 

Index 342 



AMERICAN 
FOREIGN TRADE 



AMERICAN FOREIGN 
TRADE 

CHAPTEE I 

' WHAT FOREIGN TRADE IS 

Buying as well as selling goods abroad — Nature unclianged by the 
Great War — Imports the measure of world commerce — Comparison of 
quantities and values — New high-price levels — Transportation as an 
element — Relation of foreign trade to domestic prosperity — Internal 
factors — United States as an exporting country — Evolution from agri- 
cultural products to manufactured articles — Farm implements and the 
blast furnace — Readjustment of visible and invisible balances — Sig- 
nificance of change to a creditor nation. 

FOREIGN trade, to the popular mind, is selling 
goods abroad. Buying goods abroad receive lit- 
tle thought. That is comprehended in the more 
resounding term of international commerce, which means 
the movement of merchandise across boundary-lines both 
ways. Exports and imports are the opposite pages of a 
commercial nation'si ledger. The mechanism by which 
the interchange of commodities is effected, the shipments 
of specie to balance accounts, and the adjustment of 
credits without such shipments, are somewhat vaguely 
understood as processes entering into international 
commerce. 

The popular conception of foreign trade might seem 
sufficiently clear for the purposes of a work of general 



4 AMERICAN FOREIGN TRADE 

character. It reflects the manner in which the ordinary 
man views the subject, and ordinary men, in their total- 
ity, make up the American people. But the significance 
of the United States as a world power in international 
commerce requires a more precise definition. American 
foreign trade is the United States buying goods from 
other countries as well as selling products to other coun- 
tries. The term " American " is used with the knowl- 
edge that South-Americans, Central- Americans, Mexi- 
cans and Canadians have valid objections to one nation 
appropriating it. But accepted usage in the objecting 
nations themselves may be urged in mitigation of the of- 
fense. It is less awkward to follow the common practice 
than to differentiate among several Americas and po- 
litical subdivisions of the Americas, or to point out the 
distinction between the United States of Mexico, Co- 
lombia, Brazil or Venezuela and the United States of 
which Washington is the capital. 

The nature of foreign trade is not changed in the period 
of reconstruction following the Great War. The change 
is simply in form from destructive war consumption to 
reproductive peace consumption. Production resumes 
its normal course. War activities die; peace activities 
quicken into fresh life. New industries are born out of 
the war chaos. Old markets survive. New markets are 
created. Yet wheat, corn, pork, beef, mutton, sugar, 
coffee, tea, cotton, wool, iron, copper, oil, coal, lumber, 
the interchange of these products in their raw or manu- 
factured state, constitute the foreign trade of the new as 
of the old era. 

The consequences of the Great War change the cur- 
rents of the world's commerce, and that is all. Political 
re-alinements, groupings of peoples under changed 



WHAT FOREIGN TRADE IS 5 

boundaries, the birth of new nations, creditor countries 
becoming debtors, and debtor countries becoming credi- 
tors, do not substantially modify the nature of foreign 
trade, though they may alter materially the conditions 
governing that trade. Its nature may be examined in 
the general aspect before describing the position of the 
United States. 

The imports of all the countries of the world taken to- 
gether are the only measure of the total commerce. They 
are at best a defective measure, yet they approximate a 
real standard, for they show the value in money totals of 
goods that have crossed boundary-lines, and thus have 
become foreign trade. The common error is to add im- 
ports and exports. This practice ignores the fact that 
the exports of one country are the imports of another 
country, thus counting each transaction twice. 

Students of international economics, and manufac- 
turers seeking markets abroad, need not confuse their 
brains by too much effort to reconcile conflicting export 
and import statistics. Trade statisticians, on their part, 
between the uncertainty governing the exports of one 
country that become the imports of another country, and 
the varying values due to the numerous processes in- 
volved in the interchange of commodities, at best can 
only approximate the total of the world's commerce. 
They are like the metaphysicians who, seeking to define 
the conditioned and the relatively conditioned, are con- 
tent to discover some appearance in the midst of things. 

In general it is true that the difference between values 
in countries of exportation and countries of importation 
is made up of carrying charges, exchange paid to bank- 
ers, and merchants' and shippers' profits; but it is al- 
ways questioned whether the total amounts thus paid ex- 



6 AMERICAN FOREIGN TRADE 

plain the whole difference in computed values. Allow- 
ance for freight, insurance, re-exports, customs duties, 
arbitrary tariff valuations, market values at the place of 
manufacture, different classifications, and different ad- 
ministrative methods, is inconclusive. Too often it is 
misleading. The most painstaking investigation of these 
factors only gives baflfling discrepancies. 

Growth in population, machinery as an element in 
production, subdivision of labor, new lands opened to 
cultivation — all these are factors in the increase of 
world trade during a given period. But it is not of 
great significance whether the total of import values due 
to these and other causes, which constitutes the world's 
commerce, amounts to thirty billion dollars or to thirty- 
one billion dollars in a given year. 

The period preceding the Great War was one of ab- 
normally high prices. Whether this was wholly due to 
gold inflation it is not necessary to examine. The re- 
sult was to give a fictitious increase to world trade 
everywhere. There had been some increase in quantity 
as well as in values, but not a proportionate one. Ex- 
panded commerce, through expanded values, with an 
actual decrease in the quantitative volume of trade, was 
an incident of the war. 

Dollar figures, in describing world commerce, appeal 
to the imagination by their stupendousness. To talk in 
billions is to think in billions, and the habit of mind 
grows ; yet the imagination, in dwelling on these figures, 
should not become too riotous. Where the quantities 
of goods exported increase with rising prices there is a 
real advance in foreign trade, although the augmented 
quantities may not be proportionate to the advanced 
prices. What was a dollar's worth of wheat in export 



))ry 



WHAT FOREIGN TRADE IS 7 

trade in the midsummer of 1914 had become two dollars* 
worth in the midsummer of 1917; but the bushel was 
still only sixty pounds, and five bushels of wheat were 
still required to make a barrel of flour of one hundred 
and ninety-six pounds. 

Farm products afford numerous illustrations of an 
actual decrease in volume, as measured by quantity, 
with an increase in value, as measured by prices. Be- 
fore the United States became a participant in the war, 
and before the Government fixed a minimum price for 
wheat, this tendency was clearly manifested. The same 
phenomenon was shown in the case of iron and steel 
products. 

In the fiscal year 1915, 259,643,000 bushels of wheat, 
valued at |333,523,000, were exported. In 1917 the ex- 
ports were 149,532,000 bushels, valued at |298,180,000. 
For the same years, respectively, the exports of wheat 
flour were 16,183,000 barrels, valued at |94,869,000, and 
11,942,000 barrels, valued at |93,198,000. In this case a 
decrease of 4,240,000 barrels meant a decrease of less 
than 12,000,000 in the values. 

In iron and steel products exports of 220,570,000 
pounds of wire rods Were valued at |2,744,000 in 1915. 
The value of 329,786,000 pounds was |9,870,000 in 1917. 
The value of 168,664 tons of structural iron and steel ex- 
ports was $6,289,000 in 1915. The value of 339,500 tons 
was f22,911,000 in 1917. 

These examples show that the quantity of exports and 
imports is a more correct measure of foreign trade than 
values or prices. Dollar figures should be interpreted 
in that light. It is apparent, too, that values in the 
future will afford little satisfaction in seeking to make 
trade comparisons with the past. The period before the 



8 AMERICAN FOREIGN TRADE 

war, as has been stated, was one of abnormal high prices. 
The war period was one of inflated prices. The period 
after the war is one of a permanent higher-price level. 
The dollar is a dearer dollar the world over because it 
buys less. Some recessions from the extreme prices may 
be reached, especially in food commodities, but they are 
not likely to affect the general situation. 

The year 1919 may be taken as the yardstick for the 
years to come. Five years thereafter, or ten years there- 
after, it will be possible to make comparisons on the basis 
of the year 1919. To attempt comparisons on the basis 
of 1914 would require by laborious processes to set forth 
what a dollar bought then and what it buys in the years 
after the war. It is an unnecessary labor. In fixing 
the position of the United States in world commerce in 
the future it may therefore prove desirable to give closer 
attention to quantative measurement rather than to 
price measurement, or at least to remember that the true 
nature of this foreign trade is not to be judged solely by 
tables of values. Dollar figures should be interpreted 
in that light. They do not impair the position of the 
United States in international commerce as it may be ex- 
hibited by values. 

The essential elements of the foreign trade of the 
United States may be classed as visible and invisible. 
Some of them are as clear as physical objects to the 
naked eye, while others are portrayed only through men- 
tal imagery. The quantity of goods exported and im- 
ported, the volume of the movement, and the total of 
prices given in terms of monetary values are a simple 
matter of statistics; but there are intangible elements 
which also must be taken into account in determining the 
true worth of foreign trade in the industrial and com- 



WHAT FOREIGN TRADE IS 9 

mercial movement. These include the gain to domestic 
industries by providing an outlet for excess products, the 
domestic markets created by export trade, and the 
steadying influence of the foreign market on the home 
market ; the effect of the wages paid in production and 
distribution, the demand created for products of the fac- 
tory through the business built up by investments 
abroad, and the benefits arising from the employment of 
bank reserves in international commerce. 

The transportation element may be shown by examples 
of cargoes originating at points distant from the sea- 
board. A carload of agricultural implements shipped 
from Chattanooga to Savannah, for export, before the 
war, paid at the rate of twenty-five cents per hundred 
pounds in carload lots. This meant |50 for a single 
carload of 20,000 pounds, or flOOO for a trainload of 
twenty cars. The |1000 freight on the twenty carloads 
was divided beween labor and capital, since it was paid 
out in wages, salaries, interest on bonded debt, and in 
dividends on stock. It was an addition to the amount 
paid out in the Tvages of production from the primary 
material until this was transformed into a carload of 
plows, for which the Argentine farmers paid the com- 
munity of Chattanooga. 

Similar analysis may be applied to a hundred carloads 
of mining machinery shipped from Chicago to New Or- 
leans for ocean carriage through the Panama Canal to 
the mines of Peru and Chile ; to a trainload of coal from 
the West Virginia mines to tidewater at Newport News 
for sea freightage to Rio de Janeiro or Buenos Aires ; to 
a cargo of crucible steel products from Pittsburgh to New 
York for ocean carriage to European ports; to twenty 
carloads of wire products from Birmingham to Savannah 



10 AMERICAN FOREIGN TRADE 

for shipment to Brazil and the Argentine Republic ; to a 
trainload of packing-house products from Kansas City 
to New Orleans for distribution throughout the West In- 
dies ; to a cargo of wheat from the Dakotas or flour from 
Minneapolis to seaboard for carriage across the Atlan- 
tic to Italy and ^pain ; or to carloads of cotton from the 
Texan plantations to Galveston for ocean carriage to 
Liverpool. The deduction is clear that the transporta- 
tion of products from the interior to seaboard, or to the 
frontier, as in the cases of Canada and Mexico, is an 
added source of income to the whole country that would 
not exist in the absence of foreign trade. 

Another intangible, but very definite, benefit of foreign 
trade is that of having an excess of goods taken from 
the home market, and of aiding the manufacturer to 
reduce overhead charges and secure full return on his 
capital by enabling him to employ his factory capacity 
to its full extent. This does not need to be stated in 
theoretical terms. In illustration, the anarchy in Mex- 
ico in 1913 caused a falling off of |20,000,000 in the ex- 
portation of products from the United States, so that the 
factory output was reduced by a definite quantity, and 
there was less employment. 

This meant just that much subtraction from the gen- 
eral sum of industrial activity in the profitable employ- 
ment of labor and capital during a year of notable busi- 
ness depression. The loss was not entirely negative. 
since the purchasing power in the domestic market was 
reduced by the amount of money that would have been 
received from these commodities, a loss to the producer 
of the raw material that would have been consumed in 
the factory, to the wage-earners who would have turned 
it into finished product, and to the transportation com- 



WHAT FOREIGN TRADE IS 11 

panies that would have carried these products to the 
Mexican markets. 

A common method of illustrating the benefit of foreign 
trade is the geographical one. This was employed by 
Mr. Blaine in his campaign for enlarging the markets 
of the United States in South America. He analyzed 
the cargo of an outgoing vessel, the various commodities 
of which the cargo was made up, and the part of the 
country from which these commodities came. This 
method might be called the sentimental one. It is use- 
ful in localizing the subject. 

The relation of foreign trade to domestic prosperity 
must be determined in the light of the intangible ele- 
ments as well as of the visible values, but even in a com- 
parison of visible values the tendency is to overestimate 
the internal movement and to understate the foreign 
movement. The wheat-fields of the West and the cot- 
ton-plantations of the South are drawn on by the flour- 
mills and the textile factories for raw material whether 
their products be consumed at home or be sent abroad. 
The same fields and the same factories provide the in- 
dustrial and commercial activities, so that there is no 
exact means of separating the essentials of domestic 
trade from the essentials of foreign trade. They are not 
distinct, but blend together. 

The factors of internal trade in the United States, in 
official formula, are manufactures, agricultural prod- 
ucts, mining products and minerals, fisheries and furs, 
the value of imported goods, and the value added to the 
foregoing groups by transportation. A midyear of the 
war period serves for illustration. An estimate on this 
basis fixed the internal trade of the United States for 
1915 approximately at $45,000,000,000. The value of 



12 AMEEICAN FOREIGN TRADE 

the foreign trade for the same year, as shown by actual 
statistics of exportation, was a fraction less than |4,500, 
000,000. On this reckoning the foreign trade in the year 
given was approximately ten per cent, of the commercial 
activities of the country, without allowance for the 
intangible values, such as those noted above. It may 
be remarked further that the domestic movement of com- 
merce is based very largely on estimates, while export 
trade is given in definite terms, based on the specific 
declaration made by shippers under regulations laid 
down by the Government. 

Two opposite schools of political thought in the United 
States are not so far apart in their mental attitude to- 
ward foreign trade. To those of the Chinese-wall belief 
exports are of no consequence. They would be content 
solely with the domestic movement. The other school, 
that of free trade tendencies, while theoretically equally 
interested in exports and imports, in practice shows lit- 
tle regard for exports. Its concern is for imports. 
Even the scholar in politics sometimes errs in failing 
to give to goods sent abroad their proper place in the 
commerce of the country. President Wilson, in a speech 
at Cincinnati in 1916, declared that competent author- 
ity placed the export trade of the United States at only 
four per cent, of the total commercial movement of the 
country. One of the statistical bureaus of the Govern- 
ment, the Bureau of Foreign and Domestic Commerce, 
reached a different conclusion, as follows: 

Factors of Internal Trade of the United States 1915 

Manufactures produced, 1915 $27,800,000,000 

(Based on Official Census, 1914, which gave 
$24,246,323,000.) 
Agricultural products 10,500,000,000 



WHAT FOKEIGN TRADE IS 13 

Mining Products, minerals, etc $ 2,500,000,000 

Fisheries, furs, etc 500,000,000 

Value of imported goods, 1915 1,700,000,000 

Value added to foregoing groups by transpor- 
tation 2,000,000,000 

(Freight earnings of leading railways, In- 
terstate Commerce Commission.) 

Total Internal trade $45,000,000,000 

Value of foreign commerce, fiscal year, 1915 $ 4,442,759,000 
Eelation of foreign trade to estimated in- 
ternal trade, 9.83 per cent. 

The turn-over of a country's business, as measured by 
bank clearings, stock sales, and similar transactions, is 
not a true standard on which to determine the compara- 
tive values of domestic and export trade. It presents a 
series of duplications. Production is a more certain 
standard. It reaches back from the goods either on the 
sales-eounter or on board the outgoing vessel, to the 
farm and the forest, the mine and the factory. The 
broad view is the one to be taken. This recognizes that 
domestic trade and foreign trade are not actually sep- 
arable in determining the factors in national prosperity. 
They are interworking and interdependent, mutually sus- 
taining and strengthening each other. 

With this brief exposition of what constitutes for- 
eign trade and its relation to domestic prosperity, the 
place of the United States in world commerce may be 
described. As an exporting country it has progressed 
from the primitive barter of surplus farm products and 
the raw materials of industries to the sending abroad of 
all classes of manufactured products. The nature of 
this transformation is shown vividly in the exports of 
agricultural machinery. John Deere, the Vermont 



14 AMERICAN FOREIGN TRADE 

blacksmith who settled on the prairies of Illinois and re- 
placed the crude iron blade of the pioneer farmer by steel 
plows, was one of the leaders in the transition from the 
export of agricultural products to manufactured articles. 
The chilled plow of John Oliver was another chapter in 
this trade expansion. Cyrus McCormick, Hussey, Whit- 
ley, Warder, and their rugged generation of inventors 
and forceful manufacturers made the romance of the 
reaper in the Mississippi Valley a world romance. So it 
was, too, with the threshing-machine. 

At the close of the Civil War the enterprise of these 
pioneer makers of farm machinery had opened a for- 
eign market for agricultural implements to the amount 
of a million dollars. The exports were almost station- 
ary for the next ten years. Then they began to grow, 
and the growth was rapid until the business of exporting 
agricultural machinery became a distinctively national 
one. This is the progress in the exports through the dif- 
ferent periods : 

1893 1898 1903 1908 1913 

$5,027,000 $12,432,000 $21,006,000 $22,073,000 $40,572,000 

The blast-furnace, with its multiform products, is the 
most comprehensive and illuminating chapter in the 
commercial expansion of the United States and affords 
the most striking illustrations of the changing nature of 
American-foreign trade. The eye in traveling across 
the page sees the march of exports of iron and steel and 
their manufactures in this wise : 

1893 1898 1908 1913 

$30,106,000 $70,400,000 $184,000,000 $304,600,000 

The slender thread which transmits the mysterious 



WHAT FOREIGN TRADE IS 15 

force of nature into myriad industrial activities is an- 
other example of the new industrial factors in interna- 
tional commerce which have entered into the changing 
nature of the foreign trade of the United States. The 
statistical story of the red metal is paragraphic. It 
is told in the statement that in 1913 the exports of do- 
mestic copper and its manufactures, excluding ore, 
amounted to f 140,165,000 as against |4,525,000 in 1893. 
The electrical industry development is a chapter in cop- 
per. In 1914 the exports of electrical machinery and 
appliances were approximately |25,000,000. In 1893 
they were not important enough to have a category of 
their own, but were included under iron and steel pro- 
ducts. 

The modern miracle of the motor vehicle and its ac- 
cessories is an even more striking instance of the chang- 
ing characteristics of American export trade. It starts 
with a cipher. In 1900 there were no statistics of ex- 
ports of automobiles and their accessories. In 1914 the 
exports were $38,000,000. The war year 1917 carried 
them to more than |100,000,000. Possibly the aircraft 
of commerce will show a similar rapid growth. 

Evidence of the transformation in the character of the 
exports of the United States is exhibited in two twelve- 
month periods twenty years apart. It follows : 

Exports of Domestic Merchandise'^ 

Crude Crude Prepared 

materials materials or semi- Semi-manu- Manu- 

for for prepared factured factured 

manufactures food-stuffs food-stuffs articles articles 

1893. $247,289,000 $153,278,000 $247,075,000 $ 49,070,000 $130,000,000 

1913. 731,758,000 187,907,000 321,204,000 408,807,000 776,297,000 

1 The statistics relating to American trade in these pages are drawn 
principally from the Statistical Abstract of the United States, the 
annual summary of Commerce and Navigation, and the other official 



16 AJMEKICAN FOREIGN TEADE 

The most striking feature of the foreign trade of the 
United States in the future clearly will be the dominance 
of manufactured and semi-manufactured products in ex- 
ports, and the predominance of raw material for man- 
ufactures and of food-stuffs of the tropics in imports. 
This in large degree indicates what world markets will 
be most sought. 

Readjustment of the visible and invisible elements en- 
tering into the nation's balance of trade is one of the 
economic events of the present. Some of these factors 
are entirely shifted. The payment of ocean freights and 
insurance to foreign companies virtually is ended by the 
establishment of the American merchant marine. That 
was formerly one of the principal items in offsetting the 
nominal excess of exports over imports. Against this is 
the probability that the invisible balance due to remit- 
tances by European families to kinsfolk will be larger 
than in any period previous to the Great War. The mar- 
gin which thrift offers above the cost of living will be 
drawn on more heavily than ever to replenish distressed 
Europe. Moreover, the international travel account, 
sometimes called tourist outlay, which always was a 
counterbalancing factor, will be augmented in favor of 
Europe. Individual Americans and groups of Ameri- 
cans, whether drawn by morbid curiosity to historic bat- 
tle-fields, or moved by nobler sentiments, will travel over 
the Continent in much larger numbers than ever before. 

Interest payments abroad on many kinds of American 
securities, on the other hand, will suffer a sensible dim- 
inution, due to their return to the United States in the 

reports of the several Departments of the Government. It has not been 
thought necessary to indicate them by special references except in a few 
instances. 



WHAT FOREIGN TRADE IS 17 

early period of the war. Offsetting the reduction of in- 
terest in dividends remitted by the United States on se- 
curities of private companies will be the interest pay- 
ments on the war loans made to the Government of the 
United States by the several governments of the Allied 
nations. 

In the initial stages of international settlements after 
the war the prospect was crisply put as a question of 
gold or goods. That is, w^ould the United States seek 
to add to its enormous hoard of gold by exacting further 
payments, or would it take goods, which might glut its 
own market? The situation was not so acute. The 
other alternative was offered of taking foreign securities. 
This means principally the obligations of private cor- 
porations in European countries with or without the 
backing of their governments. 

The bare payment of interest on large volumes of these 
securities will in itself be another factor in the interna- 
tional trade account. The quantities of American ma- 
terial which will enter into this rehabilitation are an 
important element in the somewhat intricate process of 
the export of capital, but they are clearly a means of add- 
ing to the export trade of the United States. They are 
a form of investments abroad. 

Detailed calculation of this factor is not necessary in 
a general survey of the prospective export commerce. 
The supreme fact is that the United States has become 
a lending country, a creditor nation. The lending 
power of the Federal Reserve Act is one of the ele- 
ments in its new status, but this power is not applied 
solely to the European war area. It has broader 
prospects in fields such as South America and China. 
In determining the circumstances of its foreign trade, 



18 AMERICAN FOREIGN TRADE 

the United States will view the world as one mar- 
ket, but it will segregate the various groups marked 
by geographical lines and economic conditions pecu- 
liar to themselves. It will take account of the change 
in the nature of its exports from agricultural to manu- 
factured products, but it will not entirely ignore the 
place of farm products in this future trade. They call 
for consideration before entering into other aspects of 
the subject. 



CHAPTER II 

THE FARM IN FOREIGN TRADE 

Economic basis of the new agriculture — Checking the food waste — 
War-time production — A bushel of wheat per person in export trade — 
Com and swine — Cattle and meat products — Cotton as a factor in 
foreign business — InsuflSciency of production outside the United States 
— Lancashire's futile efforts — Reflex influence of crops on domestic 
prosperity — The American farmer's prospects. 

THERE is a new agriculture in the United States. 
It is not a creation or a consequence of the 
Great War. It was brought into vigorous life 
in the last third of the century before the war. Its 
functions during that period were beneficently exercised 
in increasing production of staple crops to meet a phe- 
nomenal emergency. Its functions in the future are 
to fix a definite place for itself in international food 
economics and to fix the position of the American farm 
in foreign trade. 

The new agriculture takes account of economic pro- 
duction, economic distribution, and economic consump- 
tion. It recognizes that the old basis of foreign trade, 
in Tvhich farm products formed the bulk of the exports, 
is gone, yet it does not assume that the prosperity of 
the farmer is to be maintained by discouraging exports 
of agricultural crops on the theory that all that can be 
obtained from the soil is needed for domestic consump- 
tion. 

Aware that the United States is virtually self-sustain- 
ing in the production of food supplies for an increasing 

19 



20 AMERICAN FOREIGN TRADE 

population, it seeks to adjust agricultural exports to 
the changes that have come upon the country through 
the growth in the exportation of manufactured commodi- 
ties, and to adapt itself to the greater changes which are 
yet inchoate, but which are sure to follow the transition 
from the- upheaval of trade and industry on account of 
the war developments to commercial intercourse in nor- 
mal circumstances. American agriculture was awak- 
ened, quickened, vivified by the war demands, but it will 
require time to find its place in the new adjustments of 
international trade relations. 

The first consideration is that the situation should be 
met by an intelligent organized class of producers who 
understand the economic basis of the industry in which 
they are engaged. The farmer as a business man is no 
longer a myth. Unceasing educational propaganda by 
the National Government, supplemented by the state 
governments, has placed farming on a level with other 
forms of productive activities. Moreover, every year an 
increasing number of young men are graduated from 
agricultural colleges and similar institutions. They 
have been taught what scientific farming is and how it 
should be managed on a business basis. Rapidly they 
are supplanting the old-time agriculturist, who grew and 
marketed his crops in a haphazard way, and never knew 
whether he was making money or losing money. It is 
therefore the farmer as a business man who in the future 
is to be looked to in determining the place of the farm 
in foreign trade as well as in domestic business. He 
also may be depended on to understand the mutual rela- 
tion of the farm and the factory in its international, as 
well as in its national, bearing. 

The new agriculture, in the greater attention it gives 



THE FARM IN FOREIGN TRADE 21 

to the processes of production and distribution, fixes the 
position of farm products in export commerce. The war 
stimulus will be more than temporary, yet always it 
should be borne in mind that agricultural production is 
a business proposition. The city farmer, who sits at the 
editorial table of the newspapers and institutes back-to- 
the-land movements, and who tells the farmer on the 
farm the need of raising more wheat or milch cows or 
beef cattle, or of rotating his crops more systematically, 
is not the person best fitted to advise what should be 
done. The farmer will do all these things when he sees 
a profit in them, and when he is able to find the labor 
required, since his business, while subject to more un- 
certainties than commercial business, nevertheless is 
based on growing crops and raising live stock for profit. 
There is profit for him in foreign trade, but he must be 
convinced that this is so before he will concern himself 
as to the best methods of bringing it about that a definite 
proportion of his products in one form or another find 
its way abroad. 

Managing his business from this point of view, the 
farmer is concerned as an observer as well as a pro- 
ducer. As an observer, while noting stolidly the crit- 
icism of his own wasteful methods of production, he 
takes note of the American habit of extravagance in con- 
sumption. Riotous wastage of food by American fam- 
ilies has been the wonder of foreign economists and the 
despair of domestic economists. The estimate of the 
Department of Agriculture in 1914 was that |700,000,- 
000 was wasted annually. This was an enormous loss. 

In the past exhortations to increased efficiency in con- 
sumption through persuading the great body of consum- 
ers to be more saving had little effect. The American 



22 AMERICAN FOREIGN TRADE 

family is a spending family, and its marked trait is con- 
tempt for petty saving. High cost of living in the midst 
of prosperity, with everybody employed, is one remedial 
agency that is working a reform. Even before the 
United States entered the war, the family market-basket 
could not be filled so lavishly as formerly. In conse- 
quence, its contents had to go further. American fam- 
ilies were becoming less wasteful because they lacked 
the means of being extravagant. It also is possible that 
the increased production of food-stuffs, through family 
gardening, engendered by the war stimulus to patriotic 
energies, as well as by the pinch of necessity, will not 
pass as an emotional spasm that will spend itself in a 
single season, but will have lasting results. 

American agriculture responded sympathetically to 
the encouragement given it in the war emergency. The 
whole story can be briefly told. The prospective demand 
was the incentive. The acreage planted was the re- 
sponse. In 1914 the corn acreage was 103,435,000; in 
1918 it was 130,835,000 acres. The wheat acreage was 
54,661,000 and 64,590,000 acres in the same years re- 
spectively. Yields are subject to climatic conditions, 
but they are measurably proportionate to acreage 
planted. The corn crop in 1914 was 2,673,000,000 
bushels ; in 1918, 2,749,000,000 bushels. The wheat crop 
in 1914 was 891,000,000 bushels; in 1918, 919,000,000 
bushels. The live-stock industry was equally responsive. 
Beef cattle in 1914 numbered 35,855,000 ; in 1918, 43,- 
546,000. Swine were 59,000,000 and 71,374,000 in the 
respective years. Sheep alone, whether for mutton or 
for wool, failed to show an increase. Meat production 
as a whole was 5,000,000,000 pounds greater in 1918 than 



THE FARM IN FOREIGN TRADE 23 

in 1900. The actual production was 23,366,000,000 
pounds.^ 

What might be called the guaranteed inducement 
for this increase in the cereals and in live stock and 
beef products was the act of Congress of August 10, 
1917, empowering the President to fix a reasonable price 
for wheat, — and supplemental legislation in connection 
with food supplies for the Allies. The guaranteed 
price fixed for the wheat crop of 1917 was |2.20 per 
bushel, and |2.26 per bushel for that of 1918 and 1919. 
Before this legislation had been enacted and before the 
United States became a belligerent, the incentive had 
been the lessened production in large areas on account 
of the war, and the fixed and definite needs which it 
was known would have to be supplied for the Allies. 

This war-time production is a true measure of the 
possibilities of American agriculture in foreign trade. 
Wheat is the world's great competitive food product, 
and wheat exports in the form of grain and flour have 
been of inestimable value to the American farmer. On 
the basis of one hundred million inhabitants, the United 
States required annually 650,000,000 bushels of wheat 
for consumption and for seeding. The five-year average 
up to 1917 was 728,000,000 bushels. This included the 
bumper crop of 1915, which was in excess of 1,000,000,- 
000 bushels, and the shortage which affected the winter- 
wheat crop of 1917. It is of no economic consequence 
that during the early war period exports ranged from 
240,000,000 to 332,000,000 bushels annually. Regard- 
less of war conditions, there is an average of production 

1 These and other statistics are taken from the "Agricultural Year 
Book," and from the report of the Secretary of Agriculture for 1918. 



24 AMERICAN FOREIGN TRADE 

and consumption in the United States, with a normal 
surplus for export. 

The exports of wheat in ordinary times previous to 
the war were 105,000,000 bushels annually. According 
to the statement of the secretary of agriculture, this was 
a small fraction more than one bushel production per 
person in the United States. The economic proposi- 
tion, therefore, is to keep the wheat production moving 
with the growth in population so that there may be an 
average surplus of one bushel per capita for export left 
over from domestic consumption. With the constantly 
increasing efficiency in production, through the coopera- 
tion of the wheat-grower with the governmental and 
state agencies, there is no ground for assuming that this 
surplus cannot be kept up. The proportion of wheat 
manufactured into flour for export also should be main- 
tained. It would be as great folly to discourage exports 
of flour as to discourage wheat exports. 

Corn, it has been said, is the great American farm 
crop, and an average annual production approximating 
3,000,000,000 bushels justifies this statement; but it is 
further said that corn is not an export crop, since the 
quantities shipped abroad rarely exceed two per cent, 
of the total production, and in some years fall below 
one per cent. It might be observed that the exportation 
of 50,000,000 bushels of corn, valued at |30,000,000, as 
was the case in 1915, is not a negligible item in the pros- 
perity which foreign trade brings to the American 
farmer. But the production of corn is not to be con- 
sidered solely with reference to its exportation in its 
primary form. 

Years ago, when James Wilson taught the farmers of 
Iowa the increased value of their corn crop if turned 



THE FARM IN FOREIGN TRADE 25 

into hogs, he demonstrated its worth not only in domestic 
trade, but also in foreign commerce. The State of Iowa 
raises approximately 10,000,000 swine annually, and one 
of the principal sources of its prosperity is pork 
products. The lard that goes to the West Indies and 
Peru, the bacon and ham that go to Cuba and Brazil, 
and the sundry other meat products are all essential 
factors in Iowa's prosperity. There has been no de- 
crease in the number of swine in the United States. On 
the contrary, the number increased from 58,185,000 in 
1910, to 67,453,000 in 1917. While the increase is not 
proportionate to the growth in population, there is no 
marked disproportion. 

What is true of hog products is true of other meat 
products. For several years cattle-raising was station- 
ary, and it was feared that through the breaking up of 
the big ranches in the West there would be a permanent 
decrease in production; but the farmers began to raise 
more cattle on the farm when they became satisfied that 
this could be done profitably. In consequence, in 1917 
there were 63,617,000 head of cattle, including milch 
cows, as against 61,803,000 in 1910.^ 

Study of all these agricultural products shows clearly 
that the United States can produce them in quantities 
more than sufficient for the needs of its own people even 
though, as with meats, the per capita consumption in- 
creases. One year it may have a considerable excess of 
wheat. Another year the corn, or maize, although rela- 

1 The Department of Agriculture, in the statistics of farm animals, 
estimates 45,500,000 cattle other than milch cows in 1901, and the 
variations in the intervening period are upward to 35,855,000 in 1914. 
In 1907 the price per head on the farm was $17.10; in 1911, $20.54; 
in 1917, $35.88. The lowest price since 1900 was $15.15 in 1905, when 
there were 43,669,000 head. 



26 AMERICAN F0REIG:N^ TRADE 

tivelj a small percentage of the crop is exported, may add 
appreciably to the price obtained abroad for the yield 
of American agriculture. Again, it may be that the 
tobacco crop will prove unusually large, or the prices 
unusually good. Occasionally, there may be a surplus 
of meat products. Dairy produce may be the next com- 
modity of which considerable quantities can be spared. 
Taken with cotton, they go to form a varied list of 
exports, and in the variety is the certainty that every 
year the grain-fields and the cotton-plantations con- 
tribute to the value of American foreign trade. 

Cotton is a farm product because the plantation is 
only a huge farm. It ranks second in value among the 
crops of the United States. It is the most important 
commercial crop. Approximately three fifths of the 
world's cotton is produced in the Southern States. The 
production has increased since 1840 at a rate somewhat 
greater than the population.^ 

Until the beginning of the Great War the proportion 
of the product exported ranged between sixty-five and 
seventy per cent, of the total production. It might be 
desirable to use a larger portion of the raw cotton in 
the domestic mills and to send it abroad in the form of 
manufactured goods ; but this process is going on slowly, 
and cannot be hastened by artificial means. Assuming 
that a larger percentage gradually will be utilized in 
this manner, the United States always will have an 
enormous quantity for export. Cotton is the greatest 
raw asset in foreign trade. 

A question which obtrudes itself is whether competi- 
tive production in other countries will reduce the de- 

1" Geography of the World's Agriculture/' Department of Agricul- 
ture, Washington, 1917. 



THE FARM IN FOREIGN TRADE 27 

mand for American cotton. To answer this question, 
a brief survey of the cotton areas of the world is suffi- 
cient. After the United States come India, Egypt, and 
the Russia that was. In the Southern Continent the 
principal producer is Brazil, which in some years 
approximates 500,000 bales. Other widely scattered 
regions — Japan, China, British Africa, British West 
Indies, the Dutch East Indies — produce relatively 
small quantities. 

For years the Lancashire mills have had a settled 
policy of making themselves, if not independent, at 
least less dependent, on the cotton-fields of the United 
States. They have encouraged the growing of the staple 
in all of the tropical British dependencies. They have 
been supported in this experiment by the Imperial Gov- 
ernment and by the various colonial governments. The 
result has not been encouraging. 

Egypt is one of the most valuable sources of supply 
under the British flag. Under the system of irrigation 
by which the waters of the Nile have been rendered more 
tractable, the cotton area has been extended until the 
limit has been reached. Egyptian cotton is wanted by 
all the world, including the United States, since it is 
necessary in mixing with the coarser fibers; but even 
though the supply were to be monopolized by Great 
Britain, the Lancashire mills would still lack the bulk of 
the raw material required. 

The Egyptian cultivation has been extended to the 
Sudan. The soil there is suitable, but the main ques- 
tion is one of labor, and the Sudanese do not take kindly 
to field labor. The black Mohammedan finds that his 
wives and his concubines are able to support him with- 
out contributing their energies to the cotton-field, while 



28 AMERICAN FOREIGN TRADE 

he himself disdains the status of an agricultural laborer. 
The experts who studied the soil of the Sudan for the 
British Government were competent, and their conclu- 
sions as to its suitability were correct ; but they took no 
account of the labor question. The cotton production 
of the Sudan does not exceed 10,000 bales a year, fewer 
than a single section in Georgia. 

India cotton has shown little improvement in quality 
through half a century, notwithstanding all the efforts 
to better it. Nor has the area, even under irrigation, 
materially increased. India cotton, Surat, is still es- 
sential to Manchester, but only for mixing with Ameri- 
can cotton. The Lancashire spinner who during the 
Civil War interjected into a prayer for more cotton the 
ejaculation, " Yes, O Lord, but not Surat," could repeat 
that invocation to-day. 

Finally, there are the British tropical colonies, the 
Leeward Islands and others of the West India posses- 
sions; Cyprus, in the Mediterranean; and the African 
dependencies. Their total production does not equal 
that of half a dozen counties in South Carolina. 

Russian territory is the most promising source of in- 
creased cotton production outside of the United States. 
The cotton area is situated in Turkestan, or central Asia, 
and in Transcaucasia. Extensive irrigation is required 
in Turkestan, and the increase in the cultivatable area is 
slow. It will be years before Russia will produce 2,000,- 
000 bales of cotton. 

There remain the areas which, in the judgment of 
cotton-growers, are suitable for cultivation, but which 
are yet unexploited. Asia Minor is the principal one of 
these regions. The possibility of turning it into a huge 
cotton-field was one of the motives of Germany's eco- 



THE FARM IN FOREIGN TRADE 29 

nomic penetration into Asiatic Turkey. Yet even had 
Germany's ambition been realized, she could not have 
raised enough cotton in Asia Minor to supply her own 
wants. Expert investigation has shown that the crop 
which ultimately might be produced at the most would 
barely equal the production of the State of Mississippi in 
normal years. Mississippi's production is 1,000,000 to 
1,500,000 bales per year. 

The conclusion is clear that cotton will continue in- 
definitely to be the dominant factor in the export trade 
of the United States that is dependent on agricultural 
production. Approximately, it means half a billion 
dollars annually. 

With the certainty that the United States will con- 
tinue to produce wheat and other cereal crops and cotton 
in excess of its own needs, and that there will be some 
excess of live-stock products over the domestic con- 
sumption, the importance of the farm and the cotton 
plantation in international commerce becomes clear. It 
is in the variety of these products that lies the reason 
for treating them as an essential element of foreign 
trade. 

A pertinent illustration of the reflex influence of the 
agricultural crops on domestic prosperity when 
marketed abroad is found in an official report made be- 
fore the United States became a belligerent. 

Two things have occurred since the beginning of the 
European war that have awakened a lively interest in foreign 
trade in certain parts of this country where heretofore there 
had been little or no interest in commerce of that character, 
or in matters of international importance. Upon the out- 
break of the European war the price of cotton declined 
enormously. It declined to a point probably below the bare 



30 AMERICAN FOREIGN TRADE 

cost of production, and thousands of planters in one entire 
section of our country found themselves not only deprived 
of their profits but actually facing financial ruin. Merchants 
and banks, that had extended credits to the growers of cotton, 
were confronted by an equally serious condition. The whole 
situation had been brought about merely because a part of 
the European market for cotton had suddenly been cut off. 
And every intelligent grower of cotton, every well-informed 
merchant and banker, in those districts where cotton is the 
staple crop, suddenly realized what foreign trade and an ex- 
port market meant to them. 

During the same period, but perhaps with not quite the 
same suddenness, another great section of the country, the 
wheat-producing belt, found itself in the midst of unpre- 
cedented prosperity. In spite of the fact that a bumper crop 
— the largest in the history of the United States — had been 
harvested prices went to levels heretofore unknown. And 
this again simply because some of the great wheat producing 
sections of the world had suddenly been cut off from their 
usual markets in western Europe, and the demand for Ameri- 
can products consequently increased, and the western farmer, 
the grower of wheat, the merchant and the banker in that part 
of the country, found out, as never before, how important 
foreign trade was to them.^ 

Agriculture is the greatest of the resources of recon- 
struction follow^ing any war. Basic production pro- 
ceeds more rapidly than with industrial rehabilitation. 
German thoroughness in devastating the part of France 
that w^as occupied was unparalleled in its systematic 
and scientific fiendishness. It made early rehabilitation 
of that region impracticable, and by that much reduced 
the reproductive capacity of the French soil for several 
years. But this agricultural area w^as relatively a small 
one in relation to the world's agriculture. 

1 Report of Dr. E. E. Pratt, Chief of Bureau of Foreign and Domestic 
Commerce, 1916. 



THE FARM IN FOREIGN TRADE 31 

Other war areas which suffered some destruction will 
be rendered reproductive sooner, because this was the 
ordinary military destruction and not the calculated 
scientific destruction. Still other areas, such as the 
disturbed portions of Russia, prove a substantial sub- 
traction from normal productiveness. 

Outside of Russia and central Europe, the great pro- 
ductive regions of the world, those of the United States, 
of Canada, India, Australia, and South America, suf- 
fered no interference. Instead, they enjoyed the stimu- 
lus of highly profitable markets for agricultural 
products. 

The effect of the war measures taken by the various 
European governments for stimulating agricultural pro- 
duction cannot be determined at once. Yet it may be 
generally assumed that some advance has been made, 
although European agriculture is the systematized out- 
growth of centuries and does not offer a wide field for 
further improvement. In the United States the effect 
of the measures taken is likely to be more than tempo- 
rary. Cooperation in feeding the Allies, through a sav- 
ing in home consumption and by the conservation of 
food-stuffs, through enhanced production, and through 
distribution regulated systematically, affords the lesson 
for the future. If a larger surplus of agricultural 
products could be assured through these methods dur- 
ing the war, as was done, it can be assured for a long 
period after the war. The production of one bushel of 
wheat per person in the United States in excess of the 
home consumption may be taken as the general measure 
of what may be done. The supplying of other countries 
with this surplus production is the function of the Amer- 
ican farm in foreign trade. It is for the new agricul- 



32 AMERICAN FOREIGIST THADE 

ture to demonstrate the national efficiency in tMs field. 

The American farmer is assured the cooperation of 
other governments in providing the information es- 
sential to raising crops. He no longer has to guess what 
may be happening to the harvest in some other part of 
the world, although it will have an important influence 
on his own crops. The International Institute of Agri- 
culture, with headquarters at Rome, is the principal one 
of these agencies of information. 

His own Government provides the American farmer 
with something more than information about the crops. 
It seeks to advise him regarding the markets for them 
and to assist him in the actual marketing. The De- 
partment of Agriculture expanded its domestic field by 
establishing market bureaus abroad. It did what other 
departments were doing for marketing manufactured 
products. The prospect before him in every way is an 
encouraging one. 



CHAPTER III 

MACHINERY AND NATIONALIZED EFFICIENCY 

Standardizing European methods — England^s progress in scientific 
effectiveness — American individualized efficiency — Machinery's place 
in industrialism — Development of productive power — Decrease of 
handicraft — Monotony of machine craft — Welfare projects — Prohi- 
bition as an economic element — England's drink problem — The in- 
dustrial woman of the world — Status in the United Kingdom — Posi- 
tion in the United States — A world reserve factor in production. 

ENGLAND'S nationalized industrial organization 
is the world trade factor of to-morrow. Ger- 
many's monarchically socialized system of pro- 
duction and distribution is the experience of yesterday. 
America's individualized efficiency is the realization of 
yesterday and the prospect of to-morrow. France's in- 
dustrial reorganization is the hope of the future. What 
passed with the passing of arms and what remains, what 
lasting changes in economic systems may come out of 
nationalized activities, can be determined in some degree 
by a resume of the measures that were adopted for na- 
tionalizing the individual factors in trade and industry, 
finance and transportation, in order to make them more 
efficient war machines. 

The British motive, in its immediate phase, was by 
increasing productivity to overcome the devastation 
caused by war. Science was brought into more inti- 
mate touch with industry by the closer association that 
was established between the laboratory and the factory. 

33 



34 AMEKICAN FOREIGN TRADE 

Various research bodies, such as the General Advisory 
Council, with its standing committees on engineering, 
metallurgy, and mining, and the Chemical Advisory 
Council cooperated with the Government in the primary 
investigation for the speeding up of industry. That 
their work assured permanently greater productive ca- 
pacity and greater economy in production may be ac- 
cepted without cataloguing the several activities. 

The field of accomplishment is too broad for detailed 
survey. In rapid review it may be said that musty 
factory traditions disappeared, that collective efficiency 
supplanted them, that the use of automatic machinery 
became the means of quantitative production, that in- 
dustrial chemistry made striking advances as evidenced 
by an increased productiveness of fifteen hundred per 
cent, for sulphuric acid, and that all processes of pro- 
duction were improved until they approximated the 
scientific effectiveness which is the ultimate economic 
factor. 

In its widest sense it may be said that British 
industrial productiveness was standardized. When 
American enterprise, in the form of an American match 
company, in one of its militant moods, obtained control 
of its English competitor, the conservative Britons 
gasped at the swiftness with which the whole plant and 
its expensive equipment were scrapped in order that 
modernized machinery might be installed. The hand 
had given way to the machine in making sulphur 
matches, and the crude and heavy appliances in use by 
the English manufacturers were discarded overnight 
for standardized match-making machinery. Such an 
instance would now be no cause of astonishment. 

The standardization which was so marked a feature of 



NATIONALIZED EFFICIENCY 35 

the military methods, nevertheless, was not wholly a 
consequence of the war. It was more the swift develop- 
ment of processes upon which Europe already had en- 
tered. Before hostilities opened, European countries 
had begun to compete with the United States in the use 
of improved machinery. Germany, quick to appropriate 
and apply the inventions of others, had placed her basic 
industries on what was essentially an American machin- 
ery foundation. In the case of machine tools she had 
paid a high price for the privilege of transferring bodily 
an American machine-tool industry, something in which 
the United States admittedly led the world. France 
was transforming her artistic manufactures into greater 
productiveness through the adoption of improved me- 
chanical appliances and the integration of factory 
plants. England, while foremost in the manufacture of 
textile and other forms of machinery with which to equip 
foreign industrial plants, was laggard in respect to some 
of her own industries; but she was awakening. 

Standardization in the United States had been an 
illustration of individualized rather than of nationalized 
efficiency. It had come to be the matter-of-course factor 
in all phases of industrial production. Along with it 
was the efficiency developed in the single factory and 
the efficiency obtained through the integration of groups 
of factory plants. Efficiency experts and efficiency en- 
gineers, to men actually engaged in industry, had become 
a byword. It was said humorously that they caused no 
real loss, and that the plant which employed them con- 
tinued to produce about as cheaply as before they took 
temporary charge of it. This was the American way of 
confessing reaction from exaggerated expectations, but 
there was no disposition to deny the economies effected 



36 AMEKICAN FOREIGN TRADE 

by the Taylor System. The total of separate factories 
in which these economies were realized made an appreci- 
able contribution to the national efficiency in production. 

Imperious war necessities showed deficiencies in the 
means of mobilizing industry, but not in the effectiveness 
of their production. The initiative faculty, which is 
the dominant American characteristic, never was 
brought out more strongly. Standardization made 
further advances. Industrial chemistry literally leaped 
forward, so that toxic war gases, as an illustration, be- 
came an instrument of peaceful industry as soon as the 
war was ended. 

Prom the experience of England and the other Euro- 
pean belligerents, and from the example of the United 
States, the conclusion is drawn that in peace activities 
machinery occupies a more advanced place in produc- 
tion. The Great War merely pushed forward and made 
more general industrial processes that already were in 
operation. It gave affirmative evidence that the char- 
acteristic feature of modern industrialism is quantity 
production. 

Ferrero, the Italian historian, who has reveled in 
comparing the industrialism of the United States with 
the civilization of Rome, in an imaginative sentence de- 
scribes the hand of man as a living and mind-inspired 
machine. Yet the hand, as the instrument of industrial 
progress, however beautiful its manifestations may be, 
slackens and withers before the multiple mechanism 
which the human brain has devised. 

The hand loom of India, once the sustaining force of 
a vast population, in vain seeks rehabilitation in a 
nationalistic revival of the spirit of India. The loom 
is gone, and with it other cottage employments. The 



NATIONALIZED EFFICIENCY 37 

textile industry of the Hindus nevertheless becomes an 
important element of national progress, because the cot- 
ton mill, in replacing the hand loom, has vastly increased 
productiveness. The blacksmith's forge and the simple 
foundry the world over are absorbed by machine-driven 
iron and steel mills. 

The development of productive power in modern so- 
ciety through the use of machinery is a fascinating theme 
and enters into the realm of imaginative economics. 
Nearly a century ago Henry Clay, in advocating the 
policy of protection, gave this illustration of industrial 
progress in England : 

The combined force of machinery employed in manufactur- 
ing in the United States equals the labor of how many men ? 
In 1820 in Great Britain it equaled the labor of one million 
men. The aggregate labor of individuals employed equals 
the united labor of two million. The machine labor is to 
manual labor as one hundred to two. 

Ealph Waldo Emerson, a third of a century after 
Henry Clay, said that the power of machinery in the 
mills of Great Britain had been computed to be equal 
to six hundred million men, one man being able, by the 
aid of steam, to do the work which required two hundred 
and fifty men to accomplish fifty years earlier. 

Michael Chevalier, the French economist, in his 
" Course of Political Economy," in 1841, made these es- 
timates : 

Manufactures "of iron increase in productive power in five 
years as one to twenty ^five or thirty; flour, since Homer's 
day, one to one hundred and forty-four; cotton fabrics in 
seventy years as one to three thousand three hundred and 
twenty. America, in transportation of goods, as one to 
eleven thousand five hundred. 



38 AMERICAN FOEEIGN TRADE 

This is a striking view of what one man could do in 
the Homeric era, and what one man could accomplish 
towards the middle of the nineteenth century with all 
the facilities of production that had then been devised. 
The development of productiveness through machinery 
and standardization in the last seventy-five years makes 
Chevalier's estimate almost a medieval one. 

It is in the United States that in the past the use of 
machinery has been the most daring and most far- 
reaching in its influence on economic development. The 
census of hand-made goods taken from time to time is 
the living evidence of this development. But henceforth 
the United States is not to be on a much higher plane 
than other countries in the use of machinery. It will 
have to meet conditions that they have to meet. 

Meditative and moralizing economists voice their re- 
gret over the loss to the artistic side of civilization 
through this use of machinery, but the endless process 
goes on from handicraft to machine craft, through the 
temporary distress of workers caused by loss of employ- 
ment due to labor-saving machinery, until there is the 
widened employment resulting from labor-making ma- 
chinery. The moralizing economists however when 
they deplore the depressing influence of the monotony 
of machine labor on the human organism, have a case 
in court which is not argued away by the mere citation 
of physical comforts through increased productiveness. 

There are subtractive factors which lessen the value 
of machine production. The principal one is the reac- 
tion of the monotony of machine labor on the individual 
worker, and the worker's discontent merging into group 
discontent and reacting in social unrest. The war has 
advanced the status of machinery in productiveness, 



NATIONALIZED EFFICIENCY 39 

and as an element of the efficiency of the several coun- 
tries also has accentuated the inevitable condition which 
goes with it. Fortunately, there has been recognition of 
the need of meeting these conditions. 

On the part of corporations and individual employers 
it has come in the definite measures for recreation, for 
social betterment, and for disassociating the laborer 
from the monotony of his daily life. On the part of 
governments it has germinated new plans for regulating 
the conditions of labor and has given fresh impetus to 
half-considered and only partly effective policies of the 
past in relation to bettering the conditions of actual em- 
ployment. Insurance for the sick and against unem- 
ployment, old-age pensions, workmen's compensation 
and employers' liability laws, and a whole series of 
welfare laws have their roots in the desire to insure the 
mind as well as the body of the laborer against distress. 
The theory is that if his mind be taken off the monotony 
of the daily grind, both mind and body will be healthful. 

Great Britain, as a supplemental means of national- 
ized efficiency, has taken the leadership in these 
measures, especially in provisions for housing the work- 
ers and for safeguarding their health. This in reality 
is safeguarding the national health. If the measures 
become as effective as hoped, they will place England 
on something like an equality with the United States. 

There are interrogatory signals, however, in these 
measures of nationalized efficiency. One is a beckon- 
ing inquiry as to the drink habit. No one who has 
been in a British industrial section — Birmingham or 
Sheffield on a Saturday night, or the Potteries on a 
Monday morning — can doubt the economic effect of 
the drink habit on the -efficiency of a manufacturing 



40 AMERICAN FOREIGN TRADE 

country such as Great Britain. The war enabled some 
progress in temperance to be made. Strict control of 
the liquor traffic as a part of the Defense of the Realm 
Act proved more effective than the advocacy of temper- 
ance legislation on moral grounds had proved in peace- 
times. 

During peace, tradition, vested rights, personal lib- 
erty, all made the extension of governmental authority, 
in lowering the consumption of alcoholic liquors, an 
exceedingly difficult problem for whatever ministry was 
courageous enough to attempt its solution. The Liberal 
Ministry of Asquith and Lloyd George in 1908 and 1909 
found how great the difficulty was in securing the enact- 
ment of very moderate measures to reduce the number 
of public houses and limit the evil of women drinking 
in public places. 

Nor did the example of royalty permeate, as in many 
other instances, through the aristocracy and the middle 
classes down to the working classes. King George, at 
the outbreak of hostilities, announced the abstinence 
of the royal family from liquors ; but the royal example 
was not widely followed. What was accomplished was 
through direct governmental action. This was partly 
based on the necessity of conserving the materials of 
beverages for war uses. There was an actual decrease 
in consumption.^ 

The United Kingdom's annual drink bill, or the sta- 
tistics of the number of gallons of beer and whisky con- 

1 The total consumption of absolute alcohol in 1917 was approxi- 
mately 45,000,000 gallons, as compared with 73,000,000 in 1916, 81,- 
000,000 in 1915, 89,000,000 in 1914, and 92,000,000 in 1913. Of this 
quantity 73.6 per cent, was consumed as beer, 23.6 per cent, as spirits, 
and 2.8 per cent, as wine. — Report of George B. Wilson, Secretary of 
The United Kingdom Alliance. 



NATIONALIZED EFFICIENCY 41 

sumed yearly by each person, was far from telling the 
full story of the effect on industrial production. In 
the same way the figures showing decreased consump- 
tion during and following the war may not tell the full 
tale of the labor effectiveness. But it was unquestion- 
ably a more sober industrial England that emerged 
from the war. 

The United Kingdom must take note of what its 
principal industrial and commercial competitor does. 
The United States did not go on a prohibition footing 
as a direct consequence of the war. This only caused 
the pace to be accelerated. The advantage taken of 
war necessities by the prohibition advocates may have 
been unfair, but the result was obtained merely a few 
years earlier than it would have been achieved other- 
wise. What the war-prohibition legislation did was to 
accentuate that prohibition had acquired its irresistible 
force because of the recognition of its economic value. 

Moral suasion had done something toward diminish- 
ing drunkenness and the industrial inefficiency resulting 
therefrom. Advocated through three quarters of a cen- 
tury, it had done little more than this. When the vast 
waste caused by alcohol came to be recognized, when 
manufacturing corporations and labor organizations be- 
gan to advocate prohibition on economic grounds, the 
movement gained rapid headway. It may be that those 
who believed in the prohibition of whisky and in the 
indulgence in beer and light wines were sound in their 
arguments, but these arguments proved unconvincing 
to the majority of people in the United States. Pro- 
hibition is because this majority realizes its economic 
value. The damp climate of England may prove a 
sufficient argument for state control of the liquor in- 



42 AMERICAN FOREIGN TRADE 

dustry in the United Kingdom rather than for outright 
prohibition, but this, too, will be an admitted factor in 
diminishing the drink habit, or else it will not prevail 
as a policy. It must justify itself as a means of in- 
creasing productiveness, as a measure of nationalizing 
the efficiency of the British working-man.^ 

Common to all the fighting nations was the woman 
worker. Thus was evolved the industrial woman of the 
world. Following the war, the question arises. Has 
there developed the woman artisan as a new factor in 
production; and if so, what will be her relation to the 
efficiency in the productiveness of the nation? The 
thought in the background is that women must be taken 
on a parallel with the efficiency of men workers. 

The women coal-heavers of Shanghai or Port Said 
or Jamaica, who fill the ship-bunkers, do not think that 
their work is a prerogative of the male sex. The women 
burden-bearers of Tibet, who carry heavy loads up the 
steep mountain-passes, do not look on that work as 
masculine. The Indian women of Tehuantepec, who 
take to themselves the major part of the physical labor, 
have no conception that there is anything unique in their 
occupation. The business women in France never have 
allowed it to be assumed that they were usurping the 
places of men. No more have the business women and 
the stenographers and typists in the United States per- 
mitted such an assumption. By a gradual process it 
had come to be taken as a matter of course that dress- 
making, millinery, and school teaching were not the 
only callings open to women. 

1 For a discouraging view of the temperance prospects in the United 
Kingdom see "Reforming the Liquor Trade in Great Britain," by a 
British Liberal, Atlantic Monthly, June, 1919. 



NATIONALIZED EFFICIENCY 43 

The war made some changes and caused innovations 
startling to ossified communities. In England and in 
the Continental countries, after hostilities began, there 
was an increase in the number of women employed in 
field labor, but there was nothing novel about this labor, 
especially on the Continent. When women tram-con- 
ductors and mail-carriers appeared in Nottingham, 
Leeds, and Bradford, it was a matter of passing wonder, 
for those were the early days of the war. But women 
conductors had been employed for years on the tramways 
of Santiago and Valparaiso in Chile, and many women 
were already licensed taxicab-drivers in Paris. In the 
United States the appearance of women as conductors 
on the street railways merely caused the quick addition 
of a new w^ord, conductorette, to the popular vocabulary. 

The permanence, or temporariness, of these occupa- 
tions has little economic significance. The real ques- 
tion relates to the evolution of the industrial woman of 
the w^orld through employment in the munitions fac- 
tories and in kindred industries. Within a few months 
after the war began the work in the munitions factories 
of England had been so standardized that it did not 
differ greatly from work in the textile factories, in which 
women always had been employed. In 1918, the high 
pressure period, there were 1,250,000 women replacing 
men in the industrial organization in the United King- 
dom, and of these 800,000 were munitions workers. 

In the early stage of the war political economy took 
rather doleful note of the psychological effect of this 
sudden increase of women in employment, and also took 
notice of the effect on the national spending habit. The 
cockney woman, whose quick wealth of wages went for 
new hats and dresses and all sorts of feminine finery. 



44 AJMEEICAN FOEEIGN TRADE 

instead of going into the postal savings-bank, caused 
grave apprehensions. Political economy could not see 
in these extravagances the starved soul struggling to 
the light. But gTadually this situation adjusted itself. 
The woman munition-worker became a factor in con- 
sumption and production with living expenses just like 
the man worker. 

In the third year of the war a summary of an authori- 
tative character was made regarding the industrial posi- 
tion of women in the United Kingdom. It was noted 
that the process of relaxing trade-union restrictions 
which interfered with the employment of women had 
gone on at an accelerated rate; that they had entered 
innumerable occupations theretofore closed to them, for 
many of which they were supposed to be unfitted, but 
in which they were making good. It was also noted 
that in industrial occupations where physical strength 
was required they were at a disadvantage, and that in 
the munitions trades operations had been subdivided, 
and that a woman did only one, or at the most two or 
three parts of a process, instead of performing the whole 
complex operation. In this subdivided work they had 
attained great efficiency, and had proved that they had 
inherent ability to handle skillfully tools and ma- 
chinery.^ 

In the United States no census of employed women 
was made during the war. Following the armistice, 
it was estimated by the United States Employment 
Bureau that there were 12,500,000 women at work in 
industries; that is, females in gainful occupations ten 

1" Effect of the War upon the Employment of Women in Eng- 
land/' by Mary Conyngton, Monthly Review of the U. S. Bureau of 
Labor Statistics, April, 1918. 



NATIONALIZED EFFICIENCY 45 

years of age and over, without regard to those who en- 
tered industry because of temporary war conditions. 
Scattered evidence was said to indicate that the number 
was much smaller than was generally supposed, and 
that large numbers of women employed in the war in- 
dustries had been transferred from other occupations. 
It v/as assumed that after the war most of these women 
would naturally go back to their old trades. The same 
authority quoted an organization representing employ- 
ers to the effect that in the last twenty-five years the 
employment of women in manufacturing had increased 
more rapidly than that of men, and the opinion was ex- 
pressed that the expansion of their activities at this 
time may be regarded not as a radical innovation, but 
rather as an acceleration of a normal development. 

These observations would seem to put the industrial 
woman of the United States on a somewhat different 
footing from her sister in Europe, where the war needs 
did develop virtually a new class of industrial women 
workers who had been without previous experience in 
manufactures. 

The British Labor Mission which visited the United 
States after the war gave high testimony to the degree 
of efficiency of women industrial workers. The com- 
parative merits of men and women engaged in such lines 
as tool-making and delicate munition works calling for 
the utmost precision was summed up in this way: in 
fields where an all-around knowledge was required, and 
capacity for grasping many aspects of a problem, men 
still held preeminence ; but in many specialties requiring 
a high degree of efficiency in a restricted field women 
had shown themselves better able to withstand the 
monotony than men. 



46 AMERICAN FOREIGN TRADE 

This testimony is especially important in view of the 
effect of monotony through the use of machinery on 
workers generally. It seems to assure that while the 
woman mechanic numerically may not immediately be- 
come an important factor in industrial production, she 
is a reserve industrial resource, and in the employments 
where adaptability to machinery is necessary she is 
likely to measure up to the requirements. It is prob- 
able that her increased participation in mechanical labor 
will give an impetus to welfare legislation, and in the 
sense that this influences efficiency in production, there 
will be increased productiveness. Yet, taking the in- 
dustrial nations of the world as a whole, it has not been 
demonstrated that the woman mechanic will displace 
the woman of the home, or that marriage and mother- 
hood will cease to be her function in the social organiza- 
tion. The industrial woman of the world, in the final 
determination, may be regarded as the great reserve 
factor in productiveness to be drawn on as the needs 
of industry may demand. Her employment means no 
lessening of the nationalized efficiency in any country. 



CHAPTER IV 

RAW MATERIALS 

Iron the blood of industrial nations — Ore resources of the world — 
Distribution in the United States — Coal reserves — Sources of man- 
ganese — Copper and other industrial metals — Petroleum as fuel — 
Where the oil-fields lie — Water-power as motive force — Raw materials 
of textiles — Great Britain's basis of iron and steel industries — Ge- 
ographical advantages — Points in competition with the United States 
— What Lorraine iron and Sarre coal mean to France. 

''TTRON/' declared Richard Cobden, "is the blood of an 
I industrial nation." How this blood shall circulate 
JL is one of the forceful questions of the new indus- 
trial era. Food for industry is as essential as food for 
peoples. Its primary possession is the key to the future 
status of the several countries in their world trade. 

The world has more than one hundred and twenty- 
three billion tons of potential iron ore resources capable 
of conversion into more than fifty billion tons of iron. 
It has approximately twenty-two and a half billion tons 
in existing deposits more or less developed, the equiva- 
lent of approximately ten billion tons of raw iron.^ 

The resounding statement that the United States has 
ore in reserve to last a thousand years is sufficiently 
satisfying, but is somewhat vague. More definite is the 
statement that it possesses nearly one fifth of these de- 
veloped ore deposits, or in excess of four billion two 

1 " Iron Ore Resources of the World." An inquiry made upon the 
initiative of the executive committee of the Xlth International Geo- 
logical Congress, Stockholm, 1910. 

47 



48 AMEEICAN FOREIGN TRADE 

hundred and fifty million tons, which is capable of 
conversion into two billion three hundred million tons 
of iron. The German Empire, as it was constituted 
at the beginning of the Great War, with Luxemburg in- 
cluded, had a fraction less than three billion nine hun- 
dred million ore tons, equivalent to one billion three 
hundred sixty million tons of raw iron. France, as 
then made up geographically, had three billion three 
hundred million tons of ore, equal to one billion one 
hundred and forty million tons of iron. The United 
Kingdom has one billion three hundred million tons of 
ore, capable of conversion into four hundred and fifty- 
five million tons of iron. Spain has seven hundred and 
eleven million tons of ore, equivalent to three hundred 
and fifty million tons of iron. 

In the New World, Cuba and Newfoundland are minor 
reserves. The ore-beds of Brazil and Chile in South 
America, while enormous, furnish only conjectures of 
their possibilities. China is the reserve for Asia. 

The Lake Superior region in years of average activity 
is drawn on for from eighty-one to eighty-five per cent, 
of the iron ore utilized in the domestic industries of 
the United States. In dull years the production drops 
below forty million tons, and in busy years as easily 
mounts to sixty-five million tons. The Southeastern 
States, from Maine to Alabama, provide from ten to 
fourteen per cent, of the normal production, and the 
Northeastern States a fraction under four per cent. 
The Rocky Mountain region and the Pacific slope pro- 
vide about one per cent. Thus it may be said that the 
iron ore resources, although unequally distributed, exist 
throughout the whole country. 

Coal reserves throughout the entire globe amount to 



RAW MATERIALS 49 

considerably more than seven thousand billion tons.^ 
The total world production annually during peace is 
a billion and a quarter tons. 

The United States produces approximately five hun- 
dred million tons. Its coal deposits may be ex- 
hausted in two hundred years, as alarmist scientists 
sometimes assert, or they may be conserved to last 
five hundred years; but so far as the vision of man 
extends, their prospective life is sufficient to convert iron 
ore into iron and steel products until other fuel is found 
to replace them. The industrial area between Pitts- 
burgh and Cleveland is the story of the meeting of the 
iron ore of the Great Lakes with the coal of Ohio, West 
Virginia, and Pennsylvania. Birmingham's smoky at- 
mosphere tells where the ore and coal lie in twin beds. 
Colorado's iron and steel industry is the chapter which 
describes the advantageous assemblage of the ore and 
coal of the Rocky Mountain region. The vast variety 
of iron and steel products, which are the hall-mark of 
industrial progress in this era of international com- 
merce, therefore find the United States fully supplied 
with the two principal primary elements that enter into 
their production. 

There are also supplemental sources of supply. 
United States capitalists control the Cuban ore-fields, 
and draw on them as needed. Newfoundland's iron 
ore deposits likewise are available. Chile's iron-beds 
have been opened by American capital, and are now sup- 
plying blast-furnaces in Pennsylvania and Maryland. 
When the time comes that Brazil's ore reserves are 
needed they are as accessible to the United States as 

1 Toronto Geological Congress, 1912. The exact figures in the mono- 
graph on this subject were 7,397,533,000,000 tons. 



50 AMEEICAN FOREIGN TRADE 

to Europe. Such small quantities of Swedish ore and 
of Spanish ore as are wanted are easily obtained, but 
the United States could draw exclusively on the ore 
deposits of the New World, and its iron and steel in- 
dustry be absolutely independent of Europe. 

This is shown in the sources of manganese. This es- 
sential element is to be obtained from Brazil in quanti- 
ties sufficient to render that from the Caucasus and from 
India secondary, as has been demonstrated during the 
war. The Caucasian region of Russia is good for an 
annual production ranging from 1,000,000 to 1,500,000 
tons. India may reach 1,000,000 tons under the in- 
centive of extraordinary demand, but an average pro- 
duction of 600,000 tons is all that may be looked for in 
normal circumstances. The Brazilian production in- 
creased from 150,000 tons in 1913 to 400,000 tons in 
1917. It is capable of much greater increase. 

In supplying iron and steel products in world trade, 
the United States, therefore, is not confronted with peril 
from lack of raw materials. The question is, instead, 
one that relates to the conditions of competition with 
Europe in the home market and in neutral territory. 
Some shifting of the domestic industries from one local- 
ity to another may occur, due to the relative proportion 
of fuel and freight charges. But America's share in the 
iron and steel trade of the world as a whole will be 
regulated principally by conditions in the Pittsburgh 
district, with freight charges to the seaboard having a 
marked influence in determining prices at which the 
products may be sold in foreign countries. 

In the wide range of the newer industries that are 
controlling factors in world trade, copper, after iron 
ore, enters more largely into manufactured articles than 



RAW MATERIALS 51 

does any other raw material. The normal world pro- 
duction is in excess of a million long tons, and of this 
quantity the United States supplies more than one half. 
In 1913, before the war, the total world production was 
two billion two hundred million pounds, and of this 
amount the United States produced one billion two hun- 
dred and twenty-five million pounds. The production 
is more than enough for use in the electrical and other 
industries, and leaves a surplus for export; but there 
is an economic convenience in exporting part of the 
domestic product and in importing copper from other 
countries. 

Copper ore reserves available to the United States are 
found in Mexico, in Canada, and in South America. 
The Mexican deposits, for the most part, lie close to 
the boundary-line, as in the State of Sonora, and may 
be regarded by the United States as domestic resources. 
Canada may be looked on in the same way as Mexico, 
since the mines of British Columbia are contiguous. 
The South American deposits are principally in Peru 
and Chile. The majority of the mines there are owned 
by North American capital. The bulk of the output 
finds a convenient transportation route through the 
Panama Canal. 

The zinc resources of the United States are abundant 
enough for all manufacturing purposes. From 1911 to 
1915 the production increased from 272,000 to 158,000 
short tons yearly. An annual output of half a million 
tons is easily obtained, provided the demand requires it. 
Lead exceeds 500,000 tons of annual production. The 
output rose from 392,000 tons in 1911 to 507,000 tons in 
1915. The reserve resources of lead are extensive. 

Tin is one of the minerals for which the United States 



52 AMERICAN FOREIGN TRADE 

must look to other countries. When American capital- 
ists erected large smelters on the New Jersey coast they 
forgot about the tin-plate industry in England. They 
had looked to the Malay Straits Settlement for their 
raw material, but the British manufacturers persuaded 
the Straits Government to put an export tax on tin 
exported to countries not in the British Empire. Con- 
sequently, the New Jersey smelters remained idle until 
the Great War. Then an arrangement was made by 
which the raw material was obtained from Bolivia, and 
the smelters were put into operation. The Bolivian 
Government imposes an export tax, but it is not dis- 
criminatory. Bolivia produces one fifth of the world's 
tin. 

The future of petroleum as fuel is not fully deter- 
mined, but the tendency is to increase its use for in- 
dustrial purposes. The United States to-day is the 
greatest producer of oil in the world, having far out- 
stripped Russia. Mineral oils furnish one of the prin- 
cipal export commodities. Should there be a strong 
demand for the consumption of larger quantities of fuel 
oil in the United States, the exports, through economic 
causes, would be reduced automatically. The setting 
aside of extensive oil areas by the United States Gov- 
ernment as naval reserves, and the tendency of naval 
authorities to exaggerate the claims of the Navy of the 
future, by establishing a government monopoly, though 
an industrial drawback is not likely seriously to inter- 
fere with production. Oil is a raw resource of great 
value to industries, and while the needs of the Navy 
will not be neglected, there is no reason to suppose that 
public policy will permit large productive areas to be 
reserved indefinitely. 



RAW MATERIALS 53 

The petroleum production of the United States, since 
1911, has ranged from 220,500,000 barrels upward. Be- 
fore the entrance of the United States into the Great 
War the Navy Department had made an estimate of 
its needs, based on the change from coal-burning to oil- 
burning boilers, and the impracticability of changing 
back from oil to coal. The experience of war demon- 
strated the utility of oil as power and speed for the 
battle-cruisers, and also afforded some criterion of what 
are likely to be the real needs in the future. The posi- 
tion taken by the Navy Department has been that the 
oil resources on the public lands should be kept as a 
reserve, and the Government, in furtherance of this view, 
from time to time has set aside naval reserves in Cali- 
fornia, Utah, Colorado, and Wyoming. It is still a de- 
batable question how much petroleum should be kept out 
of commercial and industrial use for naval reserve pur- 
poses; but with the power of the Government to com- 
mandeer oil supplies during war, this matter does not 
seem incapable of solution. 

The real problem was thought to be whether the pe- 
troleum supply is in danger not of exhaustion, but of 
absorption in one form of industry, namely, gasolene for 
automobiles. Improved methods of manufacture; new 
discoveries, such as the Rittman Process ; the possibility 
of combining benzol and alcohol; the prospect of using 
industrial alcohol in the working of internal-combus- 
tion engines, and the abundant sources from which this 
product may be obtained — all afford relief from the 
fear that the United States may fall back in its manu- 
facturing development through lack of petroleum for 
fuel. Moreover, it has the Mexican oil-fields at Tampico 
to depend on as auxiliary sources of supply. 



54 AMERICAN FOREIGN TRADE 

The greatest means of relief, however, was a war de- 
velopment. It was the advance made in the use of in- 
dustrial alcohol as fuel by providing alcogas, a substi- 
tute, for gasolene. The full value of this substitute may 
not be realized for many years, but there is no question 
that it possesses a real fuel value. 

Reduced to statistics, which are estimates and not 
scientific propositions, the petroleum resources of the 
world are approximately one billion six hundred million 
metric tons, with possible reserves of three billion one 
hundred million metric tons. This brings the total pe- 
troleum deposits up to five billion seven hundred million 
metric tons. The United States has a probable posses- 
sion of nine hundred and thirty-seven million tons, of 
which probably six hundred and twenty-six million tons 
are available commercially. 

The possession of so large a proportion of the pe- 
troleum deposits does not, however, assure the United 
States predominance in this industry. During the war 
an official publication sounded a note of mild alarm 
over the possibility that the control of the world's supply 
would pass into foreign hands. It was, therefore, urged 
that the United States should take measures to insure 
itself full supplies.^ 

Water-power transformed into electrical energy 
is another raw material, as much a raw fuel as 
coal, which the United States possesses in abundance. 
Modern industrial authorities are just beginning to es- 
timate economic efficiency in terms of boilers and en- 
gines, — that is of horse-power, — and that which may 
be obtained from the utilization of water-power is 

1 " Petroleum Resources of the United States," by M. L. Eequa, con- 
sulting engineer of the Bureau of Mines, Washington, 1916. 



RAW MATERIALS 55 

placed on the same plane as that of the boilers and 
engines which are driven b}^ steam from coal. When 
the German Army seized Belgium, and followed this 
seizure with the occupation of a large region of France, 
the military authorities acted on the knowledge that 
the index of the industrial activity of a country is found 
in the amount of horse-power employed as motive power 
and the number of boilers installed in manufacturing 
plants. A census was taken of the number of boilers 
and the horse-power in the area occupied by the German 
troops. Very little of this was developed from water- 
power, but the industrial engineers of the Allies, taking 
their cue, began to estimate how the water-power to be 
obtained from the Alps and the Apennines could make 
up for the lack of fuel from which Italy suffered. The 
development of this water-power proved a useful service 
in Italy's munition manufactures. 

A British economist, in a mid-war discussion of Great 
Britain's presumed industrial supremacy after the war, 
IsMd stress upon the horse-power of the British Empire, 
with special reference to water-power.^ 

Canada is a principal source of this power. The es- 
timate is of approximately eighteen million water horse- 
power available in the dominion. According to the 
dominion Census Bureau there was in 1917 a total de- 
veloped water-power capacity of two million three hun- 
dred and five thousand horse-power. 

The United States, on the authority of the Geological 
Survey, has available sixty-one million six hundred and 
seventy-eight thousand water horse-power. In the con- 
gressional debates concerning the legislation for con- 

1 " Britain's Coining Industrial Supremacy," by J. Ellis Barker, 
Nineteenth Century, October, 1916. 



56 AMERICAN FOREIGN TRADE 

serving and utilizing this power, it was declared that all 
but five million three hundred thousand horse-power 
was running to waste. The truth is that the United 
States has a vast reserve of raw material in this 
potential hydro-electric energy, and that the water- 
power may fairly be classed with petroleum and coal 
as one of the primary elements of production. It 
has the additional advantage that it cannot be ex- 
ported except in the form of manufactured commodities 
for the production of which it has supplied the driving 
force. 

Raw materials of textile industries are not the natural 
monopoly of any nation. The United States, with its 
preponderant cotton production, comes closer to a textile 
monopoly than any other country. In the matter of 
wool it can claim no such preponderance. Out of an 
average world production of two billion eight hundred 
million pounds of wool annually, the United States 
cannot account for more than three hundred and fifty 
million pounds. Moreover, there is the need of the 
coarser grade wools grown in other countries for mix- 
ture. However, the whole world is open to the United 
States as much as to other manufacturing nations. 
The woolen industry is not one of rapid or of ex- 
tensive development, and it is never likely to be a 
very prominent factor in the foreign trade; but in the 
fabrics which enter into the export trade of the world 
the United States at least has a basic supply of raw wool 
of its own production. During the war large quantities 
of South-American wool were absorbed for manufactur- 
ing purposes, and this absorption is not likely to cease. 

Great Britain's raw material resources are to be 
viewed not only as those of the United Kingdom, but as 



EAW MATERIALS *57 

those of the British Empire. Nevertheless, geography 
interposes some obstacles which political ties cannot 
overcome. In the great basic raw resources of iron and 
coal the United Kingdom is to be analyzed with refer- 
ence to European geography, since the overseas colonies 
are deficient in these primary products, and if they were 
not, the transportation factor is in the way. 

The United Kingdom, according to the authority 
previously quoted, has one billion three hundred million 
tons of potential ore, equal to four hundred and fifty- 
five millions tons of raw iron. Approximately three 
hundred million tons of coal are mined annually. The 
geographical relation of the iron ore and coal deposits 
of the United Kingdom is the key to her iron and steel 
industries, to the shipbuilding at Newcastle, Glasgow, 
and Liverpool, to Birmingham's basic products, and to 
Sheffield's highly specialized articles. The soft ore of 
Sweden and the ore of Spain are easily accessible, and 
supplement the domestic supply. The manganese of 
India and of Brazil is as available for the United King- 
dom as for the United States. There is also the tin 
of Cornwall, supplemented, colonially, by that of Aus- 
tralia and the Malay Straits. 

The United Kingdom does not require to import a 
single ton of coal for her iron and steel and collateral 
industries. With the ores accessible, she has no fears 
of a lack of raw materials. So far as concerns the 
manufacture of these raw materials into finished and 
semi-finished articles, she is in a position at least as 
favorable as the United States. 

Andrew Carnegie, in his testimony before the Ways 
and Means Committee when the tariff legislation of 
1909 was being formulated, declared that Great Britain 



58 AMERICAN FOREIGN TRADE 

was badly situated in regard to iron-ore supplies, and 
that the country had reached the apex of her manu- 
facturing powers. According to him, Great Britain's 
iron-ore supplies were rapidly vanishing. 

This view was commented on at the time in England, 
and against it was cited a report of the Swedish Geo- 
logical Survey, which said that there were not fewer 
than a thousand million tons of iron ore left in the ex- 
isting workable ore-fields. England was then import- 
ing from one third to one half as much ore as she mined. 
Spain was the chief source of supply, and after that 
Sweden. 

Mr. Carnegie's prophecy was in substance that in six 
years England's iron- and steel-making resources would 
be as much impaired as would be those of the United 
States in a hundred years. The period fixed by Mr. 
Carnegie for this calamity ended in the midst of the 
Great War. England was then drawing tremendously 
on her iron-ore and coal resources for munitions-mak- 
ing, but the ore reserves gave no signs of impairment. 

A sanguine view of England's position, due to the 
possession of the raw materials which are the basis of 
iron and steel industries, was taken by a high-class 
technical journal in an article published at the threshold 
of 1918.1 

A condensation of this article was to the effect that 
the future supremacy in iron and steel and engineering 
export trade, which is the world's most important group 
of manufactures, is between the United States and the 
United Kingdom. In thirty years the world's per capita 
consumption of the group increased 150 per cent. The 
United States, Germany, and the United Kingdom sup- 

1 Engineering, London, December 28, 1917. 



RAW MATERIALS 59 

plied eighty-five per cent, of the world's iron and steel 
and engineering products. In the United States the 
iron ore is one thousand miles from the coal-mines, and 
the iron and steel works are from four hundred to five 
hundred miles from seaboard. British ore and coal 
areas are compact. Machinery on large scale produc- 
tion is a feature of the industry in the United States. 
The United Kingdom's great advantage is her coal and 
iron supplies, her manufacturing plants and shipping 
ports side by side, and her unique transport facilities. 

It is unquestionable that England can lay down 
her finished products for export at seaboard with smaller 
transportation charges than can the United States. 
Other factors enter into competitive sales in the world's 
markets, but in the means of assembling the raw ma- 
terials of the iron and steel industry and of placing the 
manufactured commodities afloat, it is touch and go be- 
tween the United Kingdom and the United States. 

England has no copper, and but little can be supplied 
from her colonies. The world's supply, however, is as 
open to her as it was to Germany, and she is in a posi- 
tion to develop her electrical industries, although in 
the past she has not done this to the degree of becoming 
a rival of Germany and the United States in copper 
products. 

In textiles the United Kingdom, as has been explained 
in a previous chapter, is not in a position to free herself 
from dependence on the raw cotton of the United States, 
notwithstanding India and Egypt. But the lack of this 
essential raw material is partly compensated by the 
development from generation to generation of skilled tex- 
tile workers. 

In the woolen industry England has both raw ma- 



60 AMERICAN FOREIGN TRADE 

terials and inherited industrial capacity. Her own 
sheep furnish a not inconsiderable supply of raw wool, 
although the common impression is that England grows 
only mutton sheep. With Australia, and particularly 
New South Wales, India, and South Africa supplement- 
ing the domestic supply of wool, England can look with 
complacency on the efforts of other manufacturing coun- 
tries to obtain raw wool. Eighty per cent, of what she 
needs is grown under the British flag. 

France, as a consequence of the Great War, has come 
into her own as the mistress of the raw materials of 
iron and steel industry. With Lorraine regained, she 
has approximately five billion six hundred and thirty 
million tons of potential iron ore reserves. The produc- 
tion of the Lorraine districts that were held by Germany 
exceeded twenty-one million tons annually. The 
Longwy-Brie district, toward which the Teutonic claws 
were stretched in order to clutch an economic resource of 
incalculable value, produced approximately twenty mil- 
lion tons. Normandy and other parts of France added 
relatively two million tons. Taken with Lorraine, the 
French iron-ore production is normally forty -three mil- 
lion tons, with at least two million tons more available 
by easy transportation across the Mediterranean from 
Tunis and Algeria. This places France second only to 
the United States in the production of iron ore. This is 
an economic event of vast significance, although its full 
purport may not be made immediately discernible by 
the rapid development of iron and steel industry. This 
is because of the lack of workers. But the workers wiU 
come in time. 

French coal always has been an industrial deficit. 
Germany had the coal, and France in normal times wafi 



RAW MATERIALS 61 

compelled to import annually twenty-two million tons 
and upward. This deficiency is now cured. Lorraine 
is capable of a coal production of at least four million 
tons annually. The Sarre Basin, which henceforth eco- 
nomically is a part of France, means ample coal for 
French industries, though it is not of the best coking 
quality. 

The possession of these raw materials by England and 
France are an index of the future trade of the world. 
They are also a warning against over-confidence. They 
do not, however, diminish the knowledge that the United 
States possesses in abundance the primary raw materials 
which, turned into manufactured products, constitute 
the bulk of the world's commerce. 



CHAPTER V 

THE DIPLOMACY OF COMMERCE 

The shipwrecked Yankee skipper and mutual bargaining — The cele- 
brated Methuen Treaty — Objects sought by England and by Portugal 

— Adam Smith's objections — Disraeli's definition of trade diplomacy 

— Palmerston on the qualities of negotiators — Tariffs modified by po- 
litical motives — Concessions by Japan and France to Great Britain — 
Commercial diplomacy in Europe in 1914 — Trade spheres and rap- 
prochements — After the war — Functions of trade diplomacy under 
the new conditions. 

ELDERLY readers may recall a droll chapter in 
James de Mille's " The Dodge Club.'' It is of a 
Yankee merchant shipmaster whose vessel, re- 
turning from Hong-Kong, is wrecked in mid-ocean. He 
keeps afloat on the carcass of a whale, where a passing 
New England vessel finds him comfortably quartered, 
philosophically awaiting a hail. The rescuing skipper 
boards the whale, and the shipwrecked merchant shows 
him over it as if it were a parcel of floating real estate. 
The shipwrecked merchant asks : 

" Would you like to buy a whale? " 

" Wa'al, yes, I don't mind. I am in that line myself." 

" What'll you give for it? " 

" What'll you take for it? " 

" What'll you give? " 

" Take? " 

"Give?" 

The dialogue continues in this manner for half an 
hour, the shipwrecked merchant remarking that he is 



THE DIPLOMACY OF COMMERCE 63 

waiting for a whaling-fleet to come along and pay him 
what his whale is worth, while the rescuing skipper ex- 
plains that this is not likelj, since he is out of the course 
of the whalers. Then the bargaining comes closer to 
a trade. The skipper proffers twenty-five per cent, of 
the oil after it is barreled, barrels and all, and explains 
to the owner of the whale carcass that this is a mutually 
advantageous proffer, since it will save a voyage to both. 
It requires the exercise of diplomacy, but both finally 
agree that this is a mutually advantageous bargain, and 
the contract is closed. It is in accord with the formula 
of trade evolved by individual men trading in their pri- 
vate capacity. 

The diplomatic formula of trade intercourse be- 
tween nations was evolved when they began to regu- 
late their relations by treaties of amity and commerce, 
or commerce and navigation. With the development 
of their material resources, their economic policies be- 
came more distinctly molded by what they believed to 
be their national interests, and their commercial rela- 
tions became more intricate of solution on account of the 
necessity of reconciling and adjusting their interests to 
the interests of other nations. 

Trade relations of the European countries during the 
epoch when commercial enterprise began to adventure 
abroad were regulated on the assumption of securing 
benefits at the expense of non-participating countries. 
Colonial trade was so completely a monopoly of the 
mother country, and was so fully recognized as such, that 
it rarely entered into the negotiation of commercial 
treaties. The model of these conventions in the eight- 
eenth century was the celebrated Methuen Treaty, nego- 
tiated in 1703 by the British Minister of that name ac- 



64 AMERICAN FOREIGN TRADE 

credited to Portugal. The text is blunt, and affords 
refreshingly frank reading in contrast with the stilted 
phraseology of ordinary treaties of friendship and com- 
merce, or of special commercial conventions, with their 
long preambles and their high-sounding declarations. 

Art. I. His Sacred Royal Majesty of Portugal, promises, 
both in his own name, and that of his successors, to admit, for- 
ever hereafter, into Portugal, the woolen cloths, and the rest 
of the woolen manufactures of the British, as was the custom, 
till they were prohibited by the law; nevertheless upon this 
condition : 

Art. II. That is to say, that Her Sacred Royal Majesty 
of Great Britain shall, in her own name, and that of her suc- 
cessors, be obliged, forever hereafter to admit the wines of 
the grape of Portugal into Great Britain: so that at no time 
whether there shall be pe^ce or war between the kingdoms 
of Britain and France, anything more shall be demanded 
for these wines by the name of custom or duty, or by what- 
soever other title, directly or indirectly, whether they shall 
be imported into Great Britain in pipes or hogsheads, or 
other casks, than what shall be demanded for the like quantity 
or measure of French wine, deducting or abating a third part 
of the custom or duty. But if at any time this deduction 
or abatement of customs, which is to be made as aforesaid, 
shall in any manner be attempted and prejudiced, it shall 
be just and lawful for His Sacred Royal Majesty of Portugal, 
agaiu to prohibit the woolen cloths, and the rest of the 
British woolen manufactures. 

There was a political purpose in this treaty. It was 
to strengthen the ties between England and Portugal, 
and the relationship thus established has continued to 
the present day. 

But the trade interest was the principal motive. Each 
country sought definite commercial advantages by means 
of an exclusive bargain to the specified disadvantage of 



THE DIPLOMACY OF COMMERCE 65 

nations outside of the compact. On the part of Portu- 
gal, the object was to gain an advantage over France in 
marketing Portuguese wines. Oporto merchants had 
settled in London in competition with the wine mer- 
chants from Bordeaux, who also were settled there. 
England's object was to widen the market for her tex- 
tiles. Some years previously Portugal, in pursuance of 
a policy of building up the domestic industry, had sought 
to accomplish this by prohibiting the importation of 
woolens. 

England at this period held a virtual monopoly of the 
manufacture of woolens, and if the Portuguese duties 
were lowered on these commodities, she had nothing to 
fear from the competition of other countries in that 
market. The treaty, therefore, provided for their ad- 
mission into Portugal at the old scale of duties, which 
were low. On their face there was nothing discriminat- 
ing in these duties, but in order to give Portugal an ad- 
vantage for her wines in England, discriminating duties 
were necessary, and consequently Great Britain abated 
one third of the duties on Portuguese wines as compared 
with wines from France. The famous Methuen Treaty 
was distinctly an exclusive bargain which operated to 
the specified disadvantage of a nation outside the com- 
pact. 

Adam Smith, in a characteristic chapter on treaties of 
commerce, registered his objections to the agreement, 
and insisted that it had procured no considerable ad- 
vantages for England. He contended that the real pur- 
pose of the Methuen Treaty was to transfer a balance in 
gold and silver, of which Portugal had a surplus through 
her monopoly of the Brazilian trade, to England by Eng- 
land selling more woolens to Portugal than the amount 



66 AMERICAN FOREIGN TRADE 

of the wines bought from that country, and that the re- 
sults were not commensurate with the concession. " A 
direct foreign trade of consumption," was his sententious 
observation, "is always more advantageous than a 
round-about one." 

Friedrich List, a modern political economist of the 
opposite school, maintained the contrary opinion. He 
declared that the Methuen Treaty was, as claimed by 
its author, a masterpiece of British commercial policy, 
and that its effect was ruinous to Portuguese industry. 
List gave statistics of the woolen industry at the period 
to support his contention. 

The motive of both countries was to obtain mutual ad- 
vantage through reciprocal equivalents. The recip- 
rocal equivalents were to be obtained, however, to the 
disadvantage of a third party, which in this case was 
France. But there was bargaining, and the bargaining 
as between the two countries was carried on in the ne- 
gotiations much as was the trading between the char- 
acters in " The Dodge Club." 

Commerce between nations is more complex than the 
trade between the shipwrecked merchant and the skipper 
of the rescuing vessl, but the principles are the same. It 
is a matter of give and take for mutual profit, with mu- 
tual concessions. 

" Diplomacy," said Benjamin Disraeli, in a debate in 
the House of Commons, in 1843, on the proposed treaty 
of commerce with France — " diplomacy stepped in to 
weigh and adjust contending interests, to obtain mutual 
advantages, and ascertain reciprocal equivalents." The 
Continental Congress of the United States had antici- 
pated Disraeli's dictum as to reciprocal advantages by 
nearly three quarters of a century. When in May, 1777, 



THE DIPLOMACY OF COMMERCE 67 

it commissioned Arthur Lee as minister to Vienna and 
Berlin, lie was given authority to negotiate commercial 
treaties with this specific direction : 

And it must never be forgotten in these commercial treaties 
that reciprocal and equal advantage to the people of both 
countries be firmly and plainly secured. 

To weigh and adjust contending interests in the trade 
intercourse of countries must be done in the light of na- 
tional interests as reflected in economic policies some- 
times antagonistic, or at least divergent. Yet in prac- 
tice these policies may prove more flexible than the 
theory of them would seem to admit. The favored na- 
tion clause is the instrument of this flexibility. 

To obtain mutual advantages properly assumes that 
international commerce cannot be regulated on the basis 
of the peddler's pack or the huckster's cart. Mutuality 
eliminates the notion that the diplomacy of commerce 
consists in getting the best of the bargain with another 
country. It assumes that there is something to exchange 
on each side on the basis of a fair bargain. 

Perhaps Disraeli would better have put the ascertain- 
ing of reciprocal equivalents before obtaining mutual 
advantages, for it is necessary to know the nature of 
products to be exchanged before their mutuality can be 
determined. While an exchange of commodity for com- 
modity sometimes is effected, this is not always a re- 
ciprocal equivalent, and the reciprocity is obtained 
through the concession granted on some other article. 

The qualities of the negotiators enter very largely into 
the diplomacy" of commerce. Lord Palmerston, in dis- 
cussing before a committee of the House of Commons 
the estimates for diplomatic expenses, once remarked: 



68 AMERICAN FOREIGN TRADE 

" Conversations which end in beneficent treaties are more 
likely to be begun, and professional or national acerbities 
be removed, in social intercourse than in any other way." 
The observation has a general application, but it is espe- 
cially pertinent to treaties of commerce, since irritation 
is frequently caused by the commercial policies of coun- 
tries between which the bond of fellowship is strong. 

When Lord Elgin came to Washington in 1854, and 
negotiated the Canadian Reciprocity Treaty with Secre- 
tary Marcy, his social campaign was said to be the means 
of securing its ratification by a hostile Senate. Lau- 
rence Oliphant, who was his secretary, has given a vivid 
picture of official life in the National Capital at that 
period, and it is perhaps due to his entertaining account 
that the ratification is misleadingly credited to social 
influence. These were not the real influences, but Lord 
Elgin's personal charm undoubtedly was a strong factor 
in the actual negotiation of the treaty. 

In negotiations personal qualities are important. The 
business is not one for blacksmiths or for amateur diplo- 
mats. Tact, patience, persistence, suavity, good humor 
under exasperating circumstances, are all essential to a 
successful negotiator; but there are other qualities. He 
must thoroughly know the case which he is pressing on 
behalf of his own country, yet like a good lawyer he must 
also know the case of the opposing side. He must un- 
derstand the industrial and commfercial conditions, the 
political and fiscal tendencies of the other country, and 
the principles which determine its economic policies. 

Germany's comprehensive series of commercial treaties 
are an illustration of this truth. They were not based 
solely on a thorough knowledge of the needs of German 
trade and industry, which was obtained through the co- 



THE DIPLOMACY OF COMMERCE 69 

operation of business and industry in the preliminary 
investigations. The German Foreign Office acted with 
equally full information of the economic and fiscal re- 
sources of the other nations. 

Negotiations for treaties of a political character some- 
times are undertaken with one or both parties not desir- 
ing to reach an agreement. In the play of wits adroit 
diplomats, trained in the old school of diplomacy as a 
career of craft, occasionally add to their reputation. 
Commercial diplomacy in the negotiation of trade trea- 
ties and the adjustment of questions growing out of di- 
vergent interests affords little ground for such cunning. 
Both parties want to find a common basis, for both are 
interested in maintaining and extending the business of 
their nationals. 

Very often the diplomacy of commerce partakes more 
of a political character than of a fiscal and economic 
adjustment. Sometimes political motives are distinctly 
in the foreground, as in the Cobden Treaty with France 
in 1860, when one purpose was to allay the jealousy and 
irritation between the two countries, which was so acute 
that it had brought them to the verge of war. 

The Cobden Treaty was a vivid illustration of the 
spirit of genuine commercial diplomacy. Mutual advan- 
tages would be obtained, but before this could be done 
there were contending interests to be weighed and re- 
ciprocal equivalents to be ascertained. England was in 
the full flush of free trade, which was giving enormous 
prosperity. France was in the enjoyment of a system 
of stiff protection, which had an overflowing measure of 
approval because of its results. Yet England yielded 
something of the free-trade principle, and France actu- 
ally modified her system of protection. Cobden, while 



70 AMERICAN FOREIGN TRADE 

undertaking to show that the treaty was no deviation 
from free-trade principles, boldly defended it as hav- 
ing the higher object of maintaining peace between the 
two countries. In later years France negotiated a trade 
treaty with Italy in ^he avowed motive of improving the 
mutual political relations. 

British diplomacy frequently has invoked the political 
motive where British trade interests were vitally con- 
cerned. Japan, in 1910, revised her tariff with the spe- 
cial object of developing domestic industries. The tex- 
tile industry was the particular solicitude of the Jap-, 
anese statesmen who believed in a national economic 
policy. The schedule originally adopted by the Japanese 
Diet was one of very high protection, which would have 
lessened materially the importation of British textiles. 
The British Government diplomatically invoked the 
Anglo-Japanese Alliance. Japan heeded the represen- 
tation of her ally. A new tariff schedule with the textile 
duties substantially reduced was submitted to the Diet, 
and was adopted. British trade diplomacy triumphed 
through political instrumentalities. 

Another illustration was afforded across the channel. 
When France, in 1911, revised her tariff on a higher pro- 
tective basis, many of the new duties bore heavily on 
the manufactured products of the United Kingdom. 
The British Government, with diplomatic suavity, in- 
voked the Entente Cordiale. Thereupon the schedules 
were modified. France better could afford to let some of 
her industries get along with a lesser degree of protection 
than to risk losing the strength in European affairs 
which the Entente gave her. Subsequent events fully 
justified the tariff concessions made to England. 

The diplomacy of commerce thus was the medium for 



THE DIPLOMACY OF COMMERCE 71 

adjusting the difficulties that England had with Japan 
and France, respectively. In both instances the recip- 
rocals were not purely trade reciprocals, and their ad- 
justment to the respective national policies was a diplo- 
matic one. Yet it had a wider application. 

During a third of a century trade diplomacy had 
molded the commercial intercourse of the European 
countries among themselves and with the rest of the 
world. Bitter waters had become sweetened. Acrid 
controversies had become softened. All countries, it 
seemed, were following their own lines of economic de- 
velopment in accordance with nationalistic needs, but 
also in harmony with the fiscal policies of other commer- 
cial nations. 

On the surface the trade relations of Europe in 1913 
and during the first months of 1914 was one of tranquil 
promise. The dislocation of international business 
caused by the Balkan wars had not been entirely normal- 
ized, but was in the process of adjustment, and, more- 
over, the area affected was a limited one. Controverted 
questions of spheres of influence were well along toward 
settlement. Democratic England and autocratic Rus- 
sia, as one fruit of their rapprochement, had divided Per- 
sia between them, regardless of Persia's wishes, and 
the last source of friction between the great island world 
power and the great European- Asiatic land power had 
been removed. 

European nations had partitioned Asiatic Turkey in 
a manner satisfactory to themselves. France had been 
given commercial control in Syria, while England had 
retained the extensive territory tributary to the Med- 
iterranean from Smyrna to Aleppo. Germany finally 
had overcome the opposition of Great Britain, France, 



72 AMEEICAN FOKEIGN .TRADE 

and Russia to the construction of the Bagdad Railway. 
Mesopotamia, with its unexploited mineral resources, its 
timber reserves, its cotton area, and other agricultural 
wealth, had become hers. England had acquiesced in 
Germany completing the railway line to a terminus on 
the Tigris beyond Bagdad, with the agreement on the 
part of Germany not to extend to the Persian Gulf. 
This was Germany's tacit, if not formal, recognition of 
the British Monroe Doctrine in the Persian Gulf and 
the Arabian Sea. 

The trade-winds seemed to be blowing smoothly when 
the hurricane rose and swept everything in its fury. In 
its devastating wake came the revelation of Germany's 
economic-militaristic plans for world domination. 

The Great War ended with Germany made impotent 
as a world-trade power. It ended also with political 
and fiscal policies of powerful nations in the process of 
radical changes, with nebulous economic alliances inde- 
terminate as to the limitations under which they might 
function, and with favored nations no longer occupying 
the place they once held in the commercial relations of 
more than one half the countries of the world. 

At first thought these startling changes might seem 
to dispense with the diplomacy of commerce. More 
careful thought of the vast problems yet to be resolved 
indicates that it will have a wider field than ever before. 
Its future functions are to be evolved out of political 
alliances, proclaimed or implied, and in accordance with 
new interpretations and new adaptations of the princi- 
ple of favored-nation treatment in commercial inter- 
course. They are to be exercised in the knowledge of 
newly born nationalistic policies, of international pacifi- 
cism seeking to adjust itself to international competi- 



THE DIPLOMACY OF COMMERCE 73 

tion, and to equality in the world's markets under the 
restrictions of national economic policies. The adjust- 
ment of contending interests, the obtaining of mutual ad- 
vantages, and the ascertainment of reciprocal equiv- 
alents become more important than in the past. The 
field is wider, but the complexities are greater. At the 
outset it is necessary to determine the prospect as to 
economic alliances and favored nations. 



CHAPTER VI 

ECONOMIC ALLIANCES AND FAVORED NATIONS 

Echoes of the Paris Pact of 1916 — Summary of its provisions ^- 
Inheritance in peace settlement — Economic boycotts and trade wars — 
Fiscal policies of the victors — New basis for commercial intercourse — 
Prospective readjustments of favored nation practice — Review of the 
European doctrine — Application to tariffs — Maximum and minimum 
schedules — Germany's conventional tariffs not the work of supermen 
— Methuen principle modernized in the Anglo- Japanese Treaty — In- 
dustrial instinct of nations — Trend to nationalistic policies in world 
trade. 

THERE is to be a new order of world trade. Im- 
plied, if not formal, economic alliances, in the 
view of some statesmen, are necessary to preserve 
the results of the war. Diverse national interests and 
divergent national policies are nevertheless to function 
within this Allied sphere. There is to be a world divi- 
sion into favored and ill-favored nations. The beginning 
is the recasting of the favored-nation practice among 
the European countries. 

Without accepting these assumptions, the situation 
may be reviewed in the light of reasonable probabilities. 
The Paris Pact of July, 1916, is the genesis of the intangi- 
ble economic league of the European Allies. This pact 
was agreed to at a conference of the Allied governments 
leld in Paris in June, 1916. It was formulated after two 
years of stress in which the full extent of the German am- 
bition for world rule had been disclosed. It also came at 
a time when the military prospects of the Allied govern- 
ments, after two years' discouragement, had become 

74 



ECONOMIC ALLIANCES 75 

promising. The later failure to realize these war ex- 
pectations did not affect the pact itself. It was the child 
of a brief period of exultation and exaltation. Viewed 
as a historical phenomenon, the pages of the past af- 
forded no parallel to it. But it was equally true that 
the pages of the past afforded no counterpart to the 
German economic-militaristic organization. 

The Paris Pact covered three periods, known respect- 
ively as the war period, the reconstruction period, and 
the peace period. The first was purely temporary and 
may be eliminated from consideration. The second pe- 
riod related to transitory measures, and especially to the 
commercial, agricultural, maritime, and industrial re- 
habilitation of the countries devastated by the German 
troops. Its leading feature was the agreement not to 
restore the most-favored-nation treatment to the enemy 
powers for a period to be fixed by mutual agreement ; to 
conserve the natural resources of the respective Allied 
countries through special arrangements to facilitate the 
interchange of these resources ; and to subject goods orig- 
inating in the enemy countries either to prohibition or to 
special regimes of an effective character. 

The proposed permanent measures were the corollary 
of the transitory provisions, and were described as meas- 
ures of mutual assistance and collaboration. They 
were in substance the stipulation that the signatory 
parties should take the necessary steps to render them- 
selves independent of the enemy countries in so far as 
regarded the raw materials and manufactured articles 
essential to the normal development of their economic 
activities. Enemy countries further were to be denied 
raw materials for their industries by means of discrim- 
inating export duties, and their cost of manufacturing 



76 AMERICAN FOREIGN TRADE 

thus increased, although it was not specifically set forth 
that this increase in cost was the motive. Allied control 
of shipping and a financial union were included in the 
project.^ 

If the shades of Adam Smith and his French compeers, 
Quesnay and Turgot, hovered over Paris in the summer 
of 1916, they must have meditated on the fallibility of 
human judgment ; for it was they who had laid down the 
positive principles which were expected to insure the 
happiness of the civilized peoples of the world by uni- 
versal free trade. The shade of Quesnay, in particular, 
must have meditated deeply, for it was he who dreamed 
of the world-economic state, and, with his fellow physi- 
ocratists, traced the outlines of the universal republic of 
commerce, starting with the premise that the merchants 
of all countries were to be considered as constituting a 
single commercial republic. But they could not have 
conceived of the politico-military system that was evolved 
in the European state that became modern Germany. 

The United States had not become a belligerent when 
the Paris Pact was adopted. Russia was a party to it, 
as the time was a year before the rise of Bolshevism and 
the crumbling of the great European-Asiatic power. 
Both these circumstances had an influence on the moral 
force of the agreement. There was criticism in the 
United States, and President Wilson's reply to the peace 
plea of the Vatican, in which he deprecated selfish and 
exclusive economic leagues was interpreted as a disap- 
proval of the Paris Pact. Responsible statesmen in 
England met this implied criticism with the statement 
that it was a defensive measure only. 

1 For full text of the Paris Pact, see Senate Document No. 491, 64th 
Congress, 1st Session, " Trade Agreements Abroad." 



ECONOMIC ALLIANCES 77 

How far the principles of the Allied economic alli- 
ance of 1916 found lodgment in the peace settlement will 
be more or less a matter of individual opinion. The pos- 
sibility of economic mesalliances is not however to be 
ignored. Nations mated in world peace policies may 
nevertheless be mismated in world trade. 

The principal economic provision in the League of 
Nations covenant has been described as the boycott. The 
boycott is the weapon of the weak. It is a form of pas- 
sive resistance. An oppressed Irish peasantry first gave 
it vitality and a name. Trade boycotts are most effective 
when employed by a people rather than by a government. 
Usually they prove temporary. The Chinese boycott of 
Japanese goods in 1915 was an example of resistance to 
what was assumed to be an unfriendly policy by a power- 
ful nation. The Chinese boycott of American goods in 
1906 was because of resentment over exclusion laws. 
It was an isolated case. It seemed to show how small a 
part gratitude plays in international affairs, since the 
United States alone, among the Christian nations, had 
remitted the indemnity exacted for the Boxer outrages. 
Its temporary nature was apparent when China again 
turned to the United States as a disinterested friend. 

Trade wars are not like boycotts. They are carried 
on by governments. They mean that two parties are 
actively and aggressively engaged in the struggle. They 
are mutually destructive, and it is seldom that either 
belligerent, when the time comes to cry quits, is able to 
view the outcome with satisfaction. 

The economic boycott proposed in the League of Na- 
tions covenant is neither the act of a people in refusing 
to buy goods from an obnoxious country nor that of two 
governments fighting each other with trade weapons. 



78 AMERICAN FOREIGN TRADE 

Its background is a denial of food and raw materials to 
offending nations as much as a prohibitive refusal to buy 
their goods. It is essentially a war measure, and, as is 
usual with war measures, one in which neutrals would be 
made to suffer penalties for not becoming belligerents. 
It does not merit further discussion in a consideration 
of world commerce under peace conditions. 

The action of the several victor nations individually 
is of more consequence to world trade than their actions 
collectively in forming theoretical economic alliances or 
in providing to utilize trade and industry as a war 
weapon. The most significant action of the European 
nations was their denunciation of their commercial trea- 
ties which contained the favored-nation clause. Since 
such of these treaties as existed with the enemy powers 
were automatically terminated by the war, the denuncia- 
tion affected principally the Allies among themselves 
and neutrals. This action was clearing the way for the 
development of new commercial relations and the re- 
vision of fiscal policies including tariffs. 

The question of the future relates chiefly to the fa- 
vored-nation treatment. The evolution of the favored- 
nation principle has not been a steady one. In the ear- 
lier stages its history was marked by acrid chapters in 
diplomacy. Governments changed their practice and at 
the same time sought to argue that they were consistent. 
All the time there were deviations from the principle, 
variations in practice, and reservations in interpreta- 
tion. Gradually it came about, nevertheless, that the 
European countries, the majority of the Spanish- Ameri- 
can countries, and Japan adopted what was known as 
the unconditional favored-nation construction, while the 
United States adhered to the conditional construction 



ECONOMIC ALLIANCES 79 

and developed a distinct policy of its own. The position 
of the United States has been that commercial favors 
granted to third countries shall be enjoyed by the party 
claiming the favored-nation treatment gratuitously, if 
so granted; or for equivalent compensation, if granted 
for a price. The American practice is discussed in a 
subsequent chapter.^ 

In sum and substance the European construction of 
the most-favored-nation clause is that trade and naviga- 
tion concessions granted by one nation to another apply 
automatically to all countries with which the nation 
granting concessions has general treaties for providing 
favored nation treatment. A historic example of the 
form, with an instance of reservations sometimes made, 
is found in the Treaty of Frankfort, which victorious 
Germany imposed on vanquished France in 1870.^ 

Art. XI. Les traites de Commerce avee les differents etats de 
TAllemagne ayant ete annules par la guerre, le Gouvernement Allemand 
et la Gouvernement Frangais prendront pour base de leurs relations com- 
merciale le regime du traitement reciproque sur le pied de la nation la 
plus favorisee. 

Sont compris dans cette regie les droits d'entree et de sortie, le 
transit, les formalites douanieres, I'admission et le traitement des 
sujects des deux nations ansi que de leurs agents. 

Toutefois seront exceptees de la regie susdite les faveurs qu'une des 
Parties Contractentes par des Traites de Commerce, a accordees ou 
accordera a des Etats autres que ceux qui suivent : — L'Angleterre, la 
Belgique, les Pays-Bas, la Suisse, I'Autriclie, la Russie. 

An example of the broadest form of unconditional 
favored-nation treatment is found in the language of a 
British-Paraguayan Treaty of 1884. Article II of that 
treaty reads : 

The contracting parties agree that in all matters relating 

1 See Chapter VIII, " American Trade Policy." 

2 Tlie text of the favored-nation clause in this treaty is as follows : 



80 AMEEICAN FOREIGN TEADE 

to commerce and navigation, any privilege, favor, or im- 
munity whatever, which either . . . has actually granted or 
may hereafter grant to the subject or citizens of any other 
State shall be extended immediately and unconditionally to 
the subjects or citizens of the contracting parties; it being 
the intention that the trade and navigation of each country 
shall be placed, in all respects, by the other on the footing 
of the most favored nation. 

In the treaty of 1860 between France and England, 
known as the Cobden Treaty, the statement of the prin- 
ciples was more simple. Article V provided : 

Each of the high contracting parties engages to extend 
to the other any favor, any privilege, or diminution of tariff 
which either of them may grant to a third power in regard 
to the importation of goods whether mentioned or not men- 
tioned in the treaty of 23rd of January, 1860. 

France was then nnder a high protective tariff, while 
Great Britain was under free trade. The treaty made 
a reservation or stipulation intended to adapt its pro- 
visions to the British customs tariff. This was that on 
goods subject to indirect taxation in England there 
should be levied, when imported from abroad, a duty cor- 
responding to the tax plus the somewhat higher rate to 
compensate English producers for the increasing cost 
which they encountered as a result of the collection of the 
tax.i 

The disciples of Cobden in their explanation of the fail- 
ure of their great leader's prophecy of universal free 
trade within fifty years have been in the habit of describ- 
ing the favored-nation clause as the sheet-anchor of free 
trade. Economists of the opposite school, with equal 

1 For full review of favored nation treaties see " Reciprocity and 
Commercial Treaties," United States Tariff Commission, Washington, 
1919. 



ECONOMIC ALLIANCES 81 

reason, have characterized it as the bulwark of protec- 
tion in accordance with nationalistic policies. It has 
been described as a device for lowering high tariffs, and, 
under the European practice, that undoubtedly has been 
the effect ; but there also has been the preliminary prac- 
tice of enacting high protective duties as the basis for 
concessions. The results of the general practice, how- 
ever, are more important than the claims of the contro- 
versalists. Under the unconditional interpretation of 
the favored-nation treatment, with frequent modifica- 
tions, the European nations in the course of half a cen- 
tury secured uniformity in commercial intercourse by 
developing a system of conventional tariffs. 

All the leading commercial nations with the exception 
of Great Britain, which was adhering to a purely revenue 
tariff, at the outbreak of the Great War had adopted the 
double tariff system on the basis of maximum and mini- 
mum schedules. Germany and France were the expo- 
nents of the different applications given to the sys- 
tem through these two sets of schedules. German 
policy assumed the expansion of exports as the primary 
and principal national necessity. It assumed com- 
parative safety from foreign competition. The French 
system, on the contrary, assumed primarily the neces- 
sity of defending and fomenting the national production, 
both agricultural and industrial, from foreign compe- 
tition. It looked only secondarily to the expansion of 
exports. In practice the French system was readjusted 
as a working measure through administrative methods. 
Germany's system had less flexibility, but under her 
policy fixity was more important than flexibility. 

Germany's conventional tariff system originated after 
the adoption of the Zollverein, or Customs Union, of the 



82 AMEKICAN FOREIGN TRADE 

several states in 1870. The Imperial German Govern- 
ment in 1879 concluded reciprocity treaties with seven 
European countries. The negotiations were conducted 
on the basis of the existing tariff, the schedules of which 
were reduced to the countries that entered into the 
treaties and automatically to those which were entitled 
to favored-nation treatment. The reduced tariff, being 
based on commercial conventions, was known as the con- 
ventional tariff, while the old tariff, which was not abro- 
gated, was called the general tariff. 

Germany had specific commercial conventions with 
not more than a dozen nations, but under the automatic 
operation of the favored-nation clause fully fifty coun- 
tries enjoyed her conventional tariff rates. In illustra- 
tion of the operation of this clause, the conventional 
treaty with France made a reduction from the Ger-man 
general tariff of twenty per cent, on machine tools in 
return for an equivalent reduction by France on Ger- 
man leather goods. England and Italy, having favored- 
nation treaties with France and Germany, got their 
leather goods into France and their machine tools into 
Germany at the conventional rates. If France had re- 
duced the duty on coal from England, the reduced rate 
would have applied to German coal. 

The French system of maximum and minimum sched- 
ules differed somewhat from the conventional tariff sys- 
tem. Instead of two rates for a selected list of articles, 
as in the case of the German tariff, it provided two rates 
on the majority of articles on which duties were im- 
posed. In the application of these rates the maximum 
schedule corresponded to the general tariff, and the 
minimum schedule to the conventional tariff. The Eu- 
ropean nations which adopted the maximum and mini- 



ECONOMIC ALLIANCES 83 

mum schedule as the basis of their tariff systems were 
France, Spain, Portugal, Greece, and Norway. The na- 
tions which adopted the conventional system were Ger- 
many, Austria-Hungary, Kussia, Italy, Switzerland, 
Serbia, Rumania, and Bulgaria. 

In the application of the favored nation clause as a 
modifying element, the practice of modern commercial 
intercourse by the European nations was the reversal of 
that which obtained in the celebrated Methuen Treaty. 
The contracting countries did not seek to establish trade 
relations to their mutual advantage by providing for the 
specific disadvantage of other countries, as was done in 
that convention. Instead, each sought to secure conces- 
sions on the products in which it was most interested in 
obtaining a market, leaving other countries to take care 
of themselves. In. some instances this was a reversion to 
the commercial treaties among the Italian City States 
of the thirteenth century, in which the favored-nation 
principle existed in germ form. But its application was 
much more complex. The schedules were modified by 
means of numerous classifications. 

Germany has been given an undeserved reputation for 
ability in manipulating these classifications, so that 
favored-nation rates meant something or nothing, just as 
she chose to have them mean. The misleading argument 
of percentages in specific treaties is sometimes resorted 
to to prove the case, but Germany was not superman in 
making tariff treaties any more than in erecting a mod- 
ern state on a biological argument of the right of might 
and of the survival of the fittest. In her passion for 
minutiae she frequently overlooked advantages which 
might have been obtained through a broader spirit. To 
her tariff -makers a pinhead was as big as a crowbar. 



84 AMERICAN FOREIGN TRADE 

The Russo-German treaty of 1894 has been frequently 
cited as an evidence of Teutonic super-shrewdness. Rus- 
sia and Germany had been engaged in a tariff war which 
had proved mutually disadvantageous. The commercial 
convention showed the full knowledge of Russia's eco- 
nomic and industrial possibilities. Germany utilized 
this knowledge to secure concessions to her own advan- 
tage and to the disadvantage of competitors for Russian 
trade. But Russia also prospered in her trade relations 
with Germany. She was not the helpless victim of eco- 
nomic exploitation that has been represented. This is 
not the popular view, but it is borne out by the trade 
statistics, and the general features of the intercourse be- 
tween the two countries. 

To go afield from the intricacies of the European 
tariffs, a clear illustration of the application of the fa- 
vored-nation clause is found in the Far East. It is 
shown in the tariff treaties of Japan made in 1911 with 
England and Germany. Both those countries demon- 
strated how the principle could be applied to their re- 
spective commercial policies. 

Article VIII of the treaty between Engl-and and Japan 
provided that the articles, the produce or manufacture 
of the United Kingdom enumerated in a schedule which 
was annexed, should not, on importation into Japan, be 
subjected to higher customs duties than those specified 
in that schedule. The textile and the iron and steel 
schedules were the principal ones. The duties specified, 
particularly on cottons, were considerably lower than the 
statutory duties. Those on pig-iron and tin-plate also 
were materially lower. These were commodities in 
which the United Kingdom had the advantage in the 



ECONOMIC ALLIANCES 85 

Japanese market over competing countries. Some kinds 
of paints also were included in this category. 

The citation of some of the items with the treaty and 
the statutory rates illustrates the working of the favored- 
nation treatment. In a few instances also the statutory 
rates and the treaty rates were identical. This was 
a means of guaranteeing England against an increase 
in the specified rates by any general tariff legisla- 
tion.^ 

The provisions in the treaty with Germany were simi- 
lar to those in that with England, but they covered prin- 

^ Tariff Schedule 

100 kin net weight. (100 kin equal 133 pounds.) 

(1 yen equals 50 cents.) 

Treaty Statutory 
Rates Rates 
No. Yen Yen 

266 Paints, 6 kilos or less 4.25 6.40 

275 Linen yarns: 

Single, gray 8.60 9.25 

298 Cotton tissues, etc., weighing not more than 5 

kilos, gray, 19 threads or less 15.30 23.00 

35 threads or less 28.70 43.00 

43 threads or less 38.00 57.00 

More than 43 51.30 77.00 

Weighing more than 5 kilos: 

19 threads or less 6.70 11.00 

35 threads or less 8.00 18.00 

43 threads or less 10.70 22.00 

More than 43 13.30 28.00 

301 Woolens: 

Weighing not more than 200 grammes per 

square meter 57.50 70.00 

Weighing not more than 500 grammes 45.00 60.00 

462 Iron : 

Pig iron 0.83 1.00 

Plates and sheets not coated 0.30 0.40 

Coated : 

Tinned 0.70 0.90 

Galvanized 1.00 2.00 



86 AMERICAN FOREIGN TRADE 

cipally the products in which Germany was strongest 
in the Japanese market. 

The United States, under the favored-nation treat- 
ment, got the same rates that England and Germany did. 
But the United States exported to the Japanese market 
few of the textiles, particularly cotton goods, which Eng- 
land exported. These were almost a Manchester monop- 
oly. Moreover, while England could export pig-iron 
with comparatively slight land-transportation charges, 
because of the nearness of her blast-furnaces to seaports, 
the United States would have heavy charges because of 
the long haul necessary to reach seaboard. Thus, while 
the Anglo-Japanese Treaty rates were not to the spe- 
cific disadvantage of the United States, and in that sense 
did not follow the Methuen practice, they observed the 
Methuen principle of securing an advantage to one coun- 
try at the expense of another, or at most with only an in- 
cidental advantage to it. 

The application of the favored-nation treatment in 
future commercial intercourse is surrounded with un- 
certainties. There are, in the first place, the new na- 
tions. They will have (economic policies of their own, or 
else they will not be free nations. The world economic 
tendency is toward nationalism. Internationalism, as 
a theory of political benevolence, does not alter this tend- 
ency. Instead, it is emphasized by the policies of the 
great powers. 

The industrial instinct of peoples grouped as nations 
has been one of the verities of history. In its twentieth- 
century developments it has largely partaken of the na- 
ture of industrialization, sometimes described as eco- 
nomic protectionism. In most of its manifestations it 
has taken the form of protective tariff, often accom- 



ECONOMIC ALLIANCES 87 

panied by bounties or subsidies to stimulate produc- 
tion. 

Statesmen responsible for the destinies of growing 
commonwealths have not bothered about John Stuart 
Mills's justification of new countries violating the gen- 
eral principle of free trade and employing artificial 
means to build up their industries. They have done it 
simply as national policy. Some of them have not even 
known the philosopher's later modification of his views, 
and the preference he expressed for direct bounties in- 
stead of protective duties. British commonwealths en- 
joying economic autonomy have employed both methods. 
Canada stimulated her iron and steel industries by direct 
bounties and subsidies as well as by protective tariffs. 
Australia fomented her agricultural production by a 
premium on the cultivation of rice, tobacco, cotton, and 
coffee, while at the same time she protected these 
products in her tariff. 

Older countries also have shown the force of the indus- 
trial instinct. Spain, although neglecting the possibili- 
ties of developing her raw resources of copper and iron 
ore, established textile industries by means of a high 
tariff. The thriving city of Barcelona is the justifica- 
tion of this policy, regardless of its conflict with the 
formula of the classical school of political economists. 

Italy, with her natural resources principally agri- 
cultural, without natural fuel, and with no raw copper, 
developed textile and electrical industries that gave her 
a world market. 

The genius of Sergius de Witte gave Russia an indus- 
trial life that was most promising. It centered princi- 
pally in the textile and chemical industries of Warsaw 
and Lodz. Poland is one of the new nations, and these 



88 AMEEICAN FOREIGN TRADE 

industrial centers are in Poland. The industrial instinct 
of the new and independent Poland is likely to find fur- 
ther expression. Industrialization is apt to become a 
cardinal part of her national policy. Her new national 
life must be molded to her own circumstances. 
This means that her commercial intercourse must be 
based on what is conceived to be best for Poland by her 
people. 

Others of the new nations are principally agricultural, 
and the development of economic protectionism may not 
be so marked, yet inevitably there will be manifestations 
of it. All these countries will want to find their place 
in world commercial intercourse. The point of great 
interest to them is their status with favored nations and 
as favored nations. 

The indications are clear that the great powers will 
have very distinct national policies of their own. 
Whether this will take the form of conditional instead of 
unconditional favored-nation treatment will depend 
in some degree on the action of two or three commercial 
nations. 

The most powerful figure among them is Great 
Britain, and Great Britain has entered on a new era 
in trade and industry. Some of its manufactures are 
purely domestic ; more extend beyond England's borders. 
It is especially not as England, but as the British Em- 
pire, that the new tendencies are to be considered. Some 
colonial statesmen have indicated a preference for the 
term " commonwealth " instead of " empire." But in 
trade relations it is in reality an empire that is formu- 
lating a policy and that must be dealt with by other 
countries. For that reason the term is retained. The 



ECONOMIC ALLIANCES 89 

British Empire and the United States are to-day and to- 
morrow the two great world powers in international 
trade. The British Empire receives consideration first. 



CHAPTER VII 

BRITISH TRADE POLICY 

Edmund Burke's survey of England's trade two centuries ago — 
Before and after the Great War — Imperial preference as an outcome 
— From Joseph Chamberlain to Lloyd George — Protective tariff ten- 
dencies in war measures — The Budget of 1919 — The self-governing 
colonies — India and the dependencies — The world view — Disguised 
or straightforward protection? — Government participation in finance 
and commerce — British trading corporation — Direct subsidies — Some 
national traits — British interests the key to British policy. 

We stand where we have an immense view of what is and 
what is past. Let ns, before we descend from this noble 
eminence, reflect that this growth of our national prosperity- 
has happened within the short period of the life of man. It 
has happened within sixty-eight years. There are those alive 
whose memory might touch the two extremities. For in- 
stance, My Lord Bathurst might remember all the stages of 
the progress. He was in 1704 of an age at least able to 
comprehend such things. 

THE speaker was Edmund Burke; the place, the 
House of Commons ; the theme, conciliation with 
America. The courtly eulogy of Lord Bathurst 
was the preface to statistics of exports as they appealed 
to the opulent imagination of the foremost political 
philosopher of the day. The purpose was to show the 
importance to England of keeping the commerce of the 
revolting colonies, which was in reality foreign com- 
merce. 

The succinct story of commercial progress, as it 
flashed through the penetrating mind of Burke, was that 

90 



BRITISH TRADE POLICY 91 

in the opening years of the eighteenth century, when 
there were five million inhabitants, the whole export 
trade of England amounted to six and a half million 
pounds sterling, and that less than seventy-five years 
later the commerce with the American colonies alone had 
amounted to this sum. 

Export commerce of the United Kingdom in 1913, 
with forty-five million inhabitants, was in excess of five 
hundred and fifty million pounds sterling or |2,700,000,- 
000. The span of three Biblical lives embraces the 
growth of exports to these stately statistics. The inter- 
val covers England's evolution as the workshop, the 
warehouse, and the clearing-house of the world. The 
figures visualize the impressive drama of British trade 
as it unfolded in little more than two centuries. 

The Great War interrupted, but could not destroy, 
the volume of this trade. Temporary war measures 
merged into permanent policies and government partici- 
pation in industry, finance and commerce became ac- 
cepted as policy in the future trade relations of the 
United Kingdom. The most important result is im- 
perial preference, propounded in peace by Joseph Cham- 
berlain,*and accepted in war by Lloyd George. 

A resume of the British movements to get away from 
free trade is desirable in order to appreciate the change. 
So strongly had tradition entrenched itself that when 
they began their agitation late in the nineties the English 
protectionists found it essential to seek the thing with- 
out the name. The approaches toward protection as a 
national policy were made under various names — fair 
trade, agricultural aid, fiscal reform, fiscal necessity, 
and, finally, tariff reform. The most aggressive agita- 
tion was carried on under the latter name. 



92 A^IERICAN FOREIGN TRADE 

An American protectionist, keeping in mind Mr. 
Blaine's dictum not to assume that protection, is in all 
countries and in all circumstances the wisest policy, may 
examine the shifting aspects of the controversy dispas- 
sionately. The most virile movement, under the name of 
tariff reform, was instituted by the radical leader, 
Joseph Chamberlain, after he left the Liberal party and 
united with the Tories in opposition to Home Rule for 
Ireland. This coalition was known as the Unionist 
party. The effort was to have it unite on tariff reform 
as a political issue in addition to irreconcilable opposi- 
tion to Home Rule. 

In the rough, the program as first promulgated was 
not to tax raw material; to tax foreign manufactures 
both for revenue and in order to protect British manu- 
facturers against foreign competition; to enact a tariff 
with retaliatory provisions as a means of securing fair 
treatment from countries that had hostile tariffs ; to keep 
British capital employed in industries at home instead 
of letting it go abroad to be paid out in wages to foreign 
workmen; to tax food products, and to strengthen the 
political ties between the colonies and the mother coun- 
try by preferential schedules. 

" Tariff refoi-mers,'' said Joseph Chamberlain in his 
London speech in 1904, " have three objects in view. 
We hope to stimulate the industry and invention of this 
country by giving it greater security. We believe that 
it is the duty of our government to defend the commerce 
of the country against unfair competition, and we desire 
to encourage trade within the Empire and strengthen 
and unite it by these means." 

Joseph Chamberlain was not deeply versed in eco- 
nomics. His program, as set forth in his speeches, was 



BRITISH TRADE POLICY 93 

crude, and he frequently contradicted himself; yet he 
held tenaciously to the imperial idea politically, and to 
imperial tariff preference as a part of it. With his usual 
boldness, he faced the main issue squarely when he pro- 
nounced in favor of taxing food products, but he dis- 
played a childlike ingenuousness when he assumed that 
the great colonies, such as Canada and Australia, would 
halt their own industries by refraining from protective 
duties as against the manufactures of the United King- 
dom.^ The friendly promptness with which Canada and 
Australia corrected this error caused the subsequent 
discussion of colonial preference to be conducted with 
the full knowledge that the preferential rate for British 
manufactures was to be only for such articles as would 
not compete seriously with the products of colonial in- 
dustry. The purpose of the colonies was in reality to 
secure a seat at the council table. 

Challenged in their citadel, the free-traders reaffirmed 
their doctrine, though within limited range. Free trade 
was no longer the universal principle, the economic ver- 
ity for all the world, but the most profitable and, there- 
fore, the most convenient fiscal policy for Great Britain. 
"We are defending it [free trade],'' said Premier As- 
quith in his London speech in 1909, " on the platform 
and in the House of Commons on the ground that experi- 
ence has shown that it is the system best suited, nay, 
that it is the only system suited at all, to the actual con- 

1 Mr. Chamberlain, in a speech at Glasgow in October, 1903, proposed 
these duties on foreign products: Wheat and flour, two shillings per 
quarter of eight bushels; meat and dairy produce, five per cent, ad va- 
lorem. Maize and bacon were excluded from duties. Remissions were 
to be made of three fourths of the duty on tea, one half that on sugar, 
and one half that on coffee and cocoa. Colonial preference was to be 
established by exemption from the duties imposed. Preferential Ijreat- 
ment also was to be given colonial wines and fruits. 



94 AMERICAN FOREIGN TRADE 

dition of industrial exigencies and practical everyday 
necessities of British trade." The free-traders afiftrmed 
that protection and preference meant dearer food and 
dearer raw material and, as a consequence, increased 
restriction of production and commerce, which meant 
an increase of the number of unemployed. 

The contest raged fiercely. There were occasional 
broadsides against the United States, but the campaign 
was directed with special virulence against Germany. 
The rallying cry was to destroy German competition in 
the British market, and it was then that the probability 
of the war of arms as well as a war of trade began to 
dawn on the people of the United Kingdom. 

The movement for a time seemed to be making head- 
way. Many of the crudities of the Chamberlain plan 
were pruned away, and definite legislation on a pro- 
tective basis was outlined. But after ten years agita- 
tion it collapsed. One reason was the inability to array 
all the Unionist elements in support of the scheme. 
Many of the Conservatives would not subordinate their 
traditional free-trade principles to their hatred of Home 
Rule, and thus make tariff reform the principal program 
of the Unionists. Arthur J. Balfour, the dialectical 
leader of the Unionists, who failed to accept the tariff 
policy in its entirety, was pushed aside, and Bonar Law, 
a robust partizan, supplanted him; but this did not 
change the situation. 

The principal cause of the failure of the movement was 
the unwillingness of the people of the United Kingdom 
to pay a tax on food products, and there appeared to 
be no possibility of laying tariff duties and carrying out 
schemes of colonial preference without taxing wheat 
and other food imports. The growing Labor party was 



BRITISH TRADE POLICY 95 

implacably hostile to such a proposition, and the middle 
classes, outside the manufacturers, were lukewarm. 
The majestic body of British public opinion voiced the 
conclusion that a continuance of the free-trade system 
was more convenient and more profitable than would be 
the change to a protective tariff. In the midsummer of 
1914 it might fairly be said that protection in England 
was a dead issue. The Unionists for ten years had tried 
to get into power on it, and had failed. The trade with 
Germany in 1913 amounted approximately to |400,000,- 
000 imports and to |203,000,000 exports.^ The British 
people as a whole seemed satisfied with this condition. 

More disquieting to the protectionists was the limited 
production of pig-iron. In the period between 1894 and 
1908 the average annual production was eight million 
two hundred and thirty -nine thousand tons in the United 
Kingdom, and six million one hundred and eighty-one 
thousand tons in Germany. In 1913 Germany had 
trebled this average production. The output of her 
blast-furnaces was nineteen million two hundred and 
ninety-two thousand tons; that of the United Kingdom 
was only ten million four hundred and seventy-nine thou- 
sand tons. The British manufacturers themselves were 
blamed for the slight increase in British production, but 
their retort was that their capital was more beneficially 
employed in other forms of industrial production. 

The Great War startled England, but it did not cause 
an immediate change in public sentiment concerning the 
relative merits of free trade and protection as the policy 
most convenient and most profitable for the United 
Kingdom. It did, however, lead gradually to the in- 

1 British Board of Trade Statistics for 1913, — Imports from Ger- 
many into the United Kingdom, £80,411,000; exports, £40,678,000. 



96 AMERICAN FOREIGN TRADE 

dorsement of the policy of imperial preference. The 
steps were progressive. Parliament directed consulta- 
tion with the governments of the dominions in order to 
insure the economic mobilization of the Empire. A 
royal commission, known as the Balfour Commission, 
because its chairman was Lord Balfour of Burleigh, was 
appointed. It reported in favor of discriminating duties 
to encourage industry and trade within the Empire. 

This commission agreed on the general proposition 
of preferential duties. Some of its members qualified 
this with the statement that they were not abandoning 
their free-trade principles, but were recognizing an ac- 
tual condition. Following this report the Imperial War 
Conference, in which the colonial premiers participated, 
resolved in 1917 that the time had arrived when all 
possible encouragement should be given to the develop- 
ment of imperial resources, and especially to making the 
empire independent of other countries in respect to food 
supplies, raw materials, and essential industries. With 
these objects in view the conference expressed itself in 
favor of the principle that each part of the empire, hav- 
ing due regard to the interests of the Allies, should give 
especially favorable treatment and facilities to the pro- 
duce and manufactures of other parts of the empire. 

This recognition of the principle of imperial prefer- 
ence was followed by more definite commitments to its 
practice on the part of the Government. Not all parties 
or political groups accepted it, but it manifestly was 
acceptable to a large body of public opinion. The reser- 
vations made did not weaken this acceptance. The 
popular idea was that under imperial preference Great 
Britain would be an economic unit both as to raw ma- 
terials and manufactured products. 



BRITISH TRADE POLICY 97 

The vision of the British Empire as an economic unit 
kindles the imagination. It means the raw resources of 
Australia, of New Zealand, of South Africa, of India, of 
Jamaica, of Canada, and of the countless British pos- 
sessions which dot the seas pouring in endless stream 
into the mills and factories of the United Kingdom, and 
the manufactured articles pouring out for the consump- 
tion of hundreds of millions of people within and with- 
out the British domain. But this has been the process 
without any tariff links to unite the scattered units of 
the empire. In operation, what the system means is a 
wider extension and closer interweaving of the colonial 
system of preferential tariffs with the English tariff and 
fiscal system. This requires that some complex prob- 
lems of adjustment with other countries of the world 
shall be solved. Solution of these problems in some 
degree will determine whether the plan is more beneficial 
to the United Kingdom than free trade has been. The 
solving of them will interest other nations fully as much 
as Great Britain and will influence their policies. 

The tariff tendencies were shown in the succession of 
war-revenue budgets. They increased the duties on the 
few articles such as tea, tobacco, and coffee on which a 
tariff for revenue was levied. They also, for the first 
time, placed duties on manufactured articles, a small list 
at first, but one which could be increased. The intention 
undoubtedly was to decrease the excess of imports, and 
to establish something like a balance of trade ; but the ef- 
fect was a large measure of incidental protection to Brit- 
ish manufactures. This effect was further shown in the 
last war budget, for such it was, although it was 
adopted in the spring of 1919. By this time the program 
of imperial preference was being worked out. Prefer- 



98 AMERICAN FOREIGN TRADE 

ence was extended to manufactured articles that are not 
manufactured for export bj the colonies. The effect, of 
course, was to give the British manufactures protective 
duties on these articles. 

A much larger degree of protection, however, was ex- 
tended under the system of government licenses. For 
the import of articles from the United States the list 
was very large. The purpose was the sound fiscal one 
of decreasing imports because the country could not send 
the gold abroad to pay for them, and could not afford, 
economically speaking, to establish further credits; but 
there was the definite indication that the system was 
used to lay the foundation for discriminating in trade 
relations and for giving the British manufactures a 
permanent advantage growing out of a temporary con- 
dition. In reference to the colonies the discrimination 
was open. Print paper and scores of articles from the 
United States, for example, were refused license, while 
it was extended to Canadian print paper and the other 
products. 

In the budget of 1919 the permanent plan for dis- 
crimination in tariff was foreshadowed. Austin Cham- 
berlain, the chancellor of the exchequer, in announcing 
the budget said that there were four main considerations. 
The preference should be substantial in amount. The 
rates should, as far as possible, be few and simple. 
Where there was an existing excise duty corresponding 
to customs duty, the excise must be proportionately ade- 
quate, so there should be no preference at the expense of 
the home producer. So far as practicable increasing 
duties on the products of the Allies for the purpose of 
imperial preference was to be avoided. This policy in 
practice worked out by keeping the existing duties on 



BRITISH TRADE POLICY 99 

their products unchanged, and reducing the duties on 
similar products when coming from British colonies and 
possessions. 

Unfriendly critics pointed out that Canada, Australia, 
and South Africa could derive little benefit from prefer- 
ential duties on clocks, watches, cinema films, motor- 
cars, or musical instruments, since they did not manu- 
facture these articles for export. If they did, this would 
bring them into stronger competition with the British 
manufacturers of similar commodities. The real pur- 
pose of these duties was declared to be to protect the 
home manufacturers, and the question was how far the 
list would be extended from time to time. The prefer- 
ential rates also applied to colonial wines, sugars, tea, 
cocoa, and coffee. 

Some general considerations may be briefly suggested. 
One of these is how far the preferential policies shall be 
applied to the dependencies as well as to the self-govern- 
ing colonies which in all their tariff preferences fully 
protect their own manufactures as against the manufac- 
tures of England. The preference is simply to goods 
from the United Kingdom over goods from other coun- 
tries. 

India is likely to be a test-point. For many years 
the Indian Government sought to establish protective 
duties on certain classes of cotton goods. Whether the 
Liberals or the Conservatives were in power, the Home 
Government always defeated these attempts. The most 
that was allowed was the duty on imported cotton goods 
of three and a half per cent, with a countervailing excise 
of the same amount. The stern economic moralists of 
the Manchester School insisted that India did not know 
what was good for itself in seeking to establish pro- 



100 AMERICAN FOREIGN TRADE 

tective duties. But they knew what was good for Man- 
chester. This discrimination was not swept away, al- 
though, during the war India advanced a substantial 
loan to the Home Government, and the increase of the 
duties on cotton goods was acquiesced in, notwithstand- 
ing there were strong protests against it. The future 
adjustment of this question will in some measure be a 
test of preference within the empire. 

The world at large is not deeply concerned with these 
questions of adjustment within the empire except as they 
affect nations outside the empire. Lloyd George de- 
clared that imperial preference was to be made effective 
without increasing the cost of food. This would mean 
that there would be no effort to give the wheat of Canada 
and Australia a preference over the wheat of the United 
States and the Argentine Republic. It would avoid the 
possibilities of complications with those two countries. 
But it would disappoint the grain-raising colonies. 

Control of raw materials through colonial export 
duties is one of the reserve factors of imperial prefer- 
ence. It has been employed effectively in the past. It 
is one of the points in the program of the economic sub- 
jection of Germany by denying raw materials. But it 
may be employed against friendly nations without un- 
friendly political intent, and with the open purpose of 
promoting British industries. The prevention of an 
American smelting industry for tin has been noted. 
By laying an export duty on tin for countries outside 
the United Kingdom it was possible to defer the realiza- 
tion of this enterprise until tin could be secured from 
another quarter of the world. 

During the war recourse was had to the potency of 
export duties in several instances. The Malay states, 



BRITISH TRADE POLICY 101 

which are not self-governing, again afforded the example. 
An export duty on tin-ore was adopted, effective from 
January 1, 1917, by which ore exported under guaranties 
that it should be smelted in the Straits Settlement, Aus- 
tralia, or the United Kingdom bore a duty of seventy- 
two per cent, of the duty on tin ; while ore exported for 
smelting elsewhere bore the same duty, plus an addi- 
tional thirty dollars per picul. Previously the export 
duty had been seventy per cent., with the same discrimi- 
nation. The action taken, therefore, might be inter- 
preted as a permanent policy. 

Palm-oil, which is as necessary for making tin-plate as 
it is useful in making soaps, was also made the subject 
of export duties from British West African possessions. 

No positive judgment can be pronounced on imperial 
preference in its initial stages. Manifestly, however, 
the British statesmen who seek to put it into effect desire 
to keep the question of tariff duties in the background. 
Disguised or indirect protection is more to their liking. 
When the tariff reform movement was at its height, the 
Liberal government offered various measures as an off- 
set. These included modifications of the Trademark 
Acts. The Patents Act was Lloyd George's specific in 
1906 for giving employment to British labor and off- 
setting the argument of the protectionists that free trade 
was responsible for unemployment. Under the Patents 
Act foreigners who took out patents were compelled to 
do a certain amount of manufacturing in the United 
Kingdom. This resulted in the setting up of many 
American branch establishments in England. 

During and following the war the tendency has been 
very marked to formulate a policy of nationalistic fiscal- 
ism by the regulation of export railroad rates, by the 



102 AMEKICAN FOREIGN TEADE 

licensing of investment of capital in constructive enter- 
prises so as to exclude foreign participation, and by 
controlling exchange. The colonies come within the 
beneficial scope of these plans. Some of the advocates 
of these measures, while characterizing them as a chap- 
ter in the program of imperial preference, are also bold 
enough to describe them as the new protection, or as eco- 
nomic protection, notwithstanding the German origin of 
the latter term. It is another phase of the tendency to 
keep tariff schedules in the background, and thus avoid 
antagonizing free-trade traditions. 

The world view is not likely to be so circumspect. It 
recognizes that imperial preference means trade im- 
perialism on the part of the British Empire. Commer- 
cial nations realize that they must take measures to 
adjust themselves to the new British policy. Some of 
these may require that they suffer inconvenience. 
Others are likely to be definite measures to prevent dis- 
criminations, and to insure equality of treatment for 
their products in British markets whether colonial or in 
the United Kingdom. They would prefer, however, that 
British statesmen meet the situation squarely, and ac- 
knowledge that straightforward protection is a part of 
the future policy of the empire and is not confined to 
tariffs. 

The direct participation of the British Government 
in commercial and industrial enterprises in its first 
manifestation had no relation to world trade. It was 
a war measure, but its effects were not temporary. The 
chemical and dye industries received direct government 
financial aid. The purpose was to establish the key 
industry, essential to munitions-making. A broader ob- 
ject was to make England forever free from the control 



BRITISH TRADE POLICY 103 

which Germany previously had held of chemicals and 
dyes. The British chemical and dye industry may, by a 
process of transition, become a purely private enterprise ; 
but as such it will continue to have the fostering care of 
the Government either by protective duties or by other 
forms of protection. 

The general policy of the British Government at the 
outset of the war was to preserve the export trade. The 
revenue and fiscal and other measures, including the 
broad powers exercised under the Defense of the Realm 
Act, were all bent to this purpose. Exports were too 
valuable an asset to the British Empire to be en- 
dangered. The most careful solicitude was shown. 
Many patriotic Britons abroad who were anxious to 
come home to fight were made to understand, reluctantly 
on their part, that they could be of more service in con- 
tinuing as traders. The solicitude to preserve British 
industries abroad extended to every detail. Nitrate 
plants in Chile, a neutral country, which suffered few 
of the war hardships in the way of restricted food and 
other supplies, found themselves stocked with whole 
wheat flour at a time when the English people at home, 
and the people in the United States who were supplying 
the wheat, had to be content with war bread. In the 
later and most desperate stage this policy was relaxed 
somewhat, so as to concentrate every economic resource 
on winning the war. But the trade prospects after the 
war were never lost sight of. The Ministry of Recon- 
struction, with its multiplicity of commissions, per- 
formed a vast service to Great Britain in its adaptation 
of the needs of the future. 

Measures for nationalizing the organization of com- 
merce and industry adopted during the war have a per- 



104 AMEEICAN FOREIGN TRADE 

manent influence on British trade policy. The principle 
adopted in some cases was that of subsidizing companies 
to promote British interests abroad. The immediate 
purpose was to offset Germany in the war, but it was 
not intended that the policy entered upon should be 
concluded with the ending of the war. The British 
Trading Corporation was the most striking instance of 
this policy. Originally it was called the British Trade 
Bank, and was intended to supplement the already ample 
facilities of London finance for handling international 
transactions and promoting British commerce abroad. 
The formation of this financial institution was recom- 
mended and instituted by the Board of Trade, which is a 
department of the British Government corresponding to 
the Department of Commerce in the United States. 

The substance of the original proposition was that a 
trade bank with a capital of ten million pounds sterling, 
part of which should be contributed by the Government, 
should be formed for the specific purpose of financing 
enterprises engaged in foreign trade or in providing 
facilities for commerce. The Board of Trade plan was 
set forth in detail, and was subsequently broadened. 
There was some adverse comment in Parliament, and the 
fear of competition hurtful to existing institutions was 
also voiced ; but the promise that the corporation should 
be conducted on lines to aid British trade and industry 
in foreign fields was sufficient to overcome the objections. 
The British Trading Corporation is to-day the living evi- 
dence of England's determination to employ the Govern- 
ment as a means of extending England's foreign trade. 

Another example of the new policy was that of the 
British-Italian Corporation. This was formed by the 
London banks with a subscribed capital of one million 



BRITISH TRADE POLICY 105 

pounds sterling, but the Government covenanted to con- 
tribute fifty thousand pounds sterling annually to the 
company by way of subsidy during each of the first ten 
years after its incorporation. A company also was 
formed in Italy, known as the Italian-British corpora- 
tion, with a capital of four hundred thousand pounds 
sterling, one half of which was taken by the British cor- 
poration, and one half by the Italian corporation. The 
corporations were provided with interlocking director- 
ates. There was a war purpose in the aid which the 
British Government gave this enterprise, since it was 
the desire to undermine the financial and industrial 
foothold that Germany had gained in Italy. But the 
government participation was not withdrawn after the 
armistice was signed. The Anglo-Italian corporation is 
in all essentials an after-the-war enterprise in which the 
British Government participates with a view to aiding 
British industry abroad. 

The similarity of these two institutions to German 
institutions will be noted by the observer. They are the 
frank confession that England, in her foreign trade 
policy, has accepted the German system. Many other 
instances may be found in the various measures of gov- 
ernment participation and control of finance, industry, 
and commerce.^ 

Trade intelligence has not been in the past one of the 
strong points in British foreign commerce. The British 
Consular Reports were cast in a mold many years ago, 
and the mold was broken. These reports formed a body 
of solid trade literature. One always knew what to 

1 These subjects are covered in their full detail in the extensive series 
of White Papers issued by the British Government. The files of the 
Board of Trade Journal may be consulted for a contemporary account 
of the numerous measures adopted. 



106 AMERICAN FOREIGN TRADE 

find and where to find it. In whatever part of the world 
reports were made, the general trend was the same with 
trade statistics of the latest period replacing the statis- 
tics of a previous period. Useful as the information 
was, it did not meet changing conditions. Before the 
war the British consuls were frequently criticized for 
their lack of enterprise. Unfavorable comparisons were 
made with the work of American consuls. Some 
changes had been attempted by the Foreign Intelligence 
Bureau, but the unscalable wall of tradition was run 
against. The changes made in the system following the 
war quickened appreciation of what is news in regard 
to world trade on the part of the British consular repre- 
sentatives. 

Temperament in trade — that is, in international 
commerce — performs a valuable function, just as it 
does in salesmanship. In this respect it cannot be said 
that the Briton is lacking. An American colloquial 
phrase describes him. Foreign trade " comes natural " 
to him, but it comes natural only through inheritance. 
Generation after generation of young Britishers sent 
abroad have come to know almost instinctively how to 
build up business for their country. They also have got 
in the habit of regarding foreign markets as theirs by a 
sort of divine right. This frequently makes the indi- 
vidual Briton arrogant and offensive, but it makes the 
British merchants as a body very powerful in any foreign 
country. It comes natural for them to act together. 
Their solidarity is reflected at home, and contributes 
very greatly to influence British foreign policy. 

There is also the direct influence of the British busi- 
ness man or returned merchant who, after a valuable 
experience in foreign countries, has returned to England. 



BRITISH TRADE POLICY 107 

His familiarity with the needs of British trade abroad 
makes him a valu'able adviser. The belief he imbibed 
as a young man in his foreign environment that foreign 
trade belongs by a sort of divine right to England makes 
him an unconscious, but aggressive, partizan. His in- 
fluence frequently extends to more direct participation 
in public affairs. Not infrequently his contributions to 
his party, or other political services, have secured him 
a knighthood, a baronetcy, or even a peerage. From this 
elevated attitude he exercises a greater influence than 
he could as a mere commoner. 

The nationalization projects are to be reviewed prin- 
cipally in relation to what comes after. Nationalizing 
the munitions factories was purely a military measure 
and of a temporary character. The virtual nationaliza- 
tion of the railways was entirely different. It was done 
over-night, the day following the declaration of war. 
Laws passed in previous years had provided that the rail- 
ways should come under government control as soon as 
war should be declared. The stockholders were com- 
pletely eliminated from any voice in the management of 
their property. The Government operated the lines pri- 
marily with a view to military necessities, but there was 
no dislocation of the normal relation of transportation to 
production and consumption. The operation of forty 
thousand miles of railway was not in itself a diflflcult 
matter. The policy of nationalizing the railways per- 
manently opens many interesting problems, but it may 
be assumed that under government ownership and op- 
eration there would be a special regard for the effect of 
railway rates on overseas trade. 

Government control of shipping lines is not so simple 
as the operation of land lines. The nationalization in 



108 AMEKICAN FOREIGN TRADE 

this case hardly would be so complete. It would take 
the form of government direction with a view to intra- 
and inter-steamship operation rather than of complete 
ownership. 

The proposed nationalization of the mines is a much 
more serious question. They are the basis of England's 
iron and steel industry, and the iron and steel industry 
is the foundation of the foreign trade of the United King- 
dom. The difl&culty here is an economic one. There 
is a limit to wages that can be paid in mines as in other 
industries. Too high wages, whether in the form of 
money payments or of reduced working hours, may 
make production too costly. 

Conservative British capitalists and industrial lead- 
ers, representatives of the old regime in finance and 
trade, have looked somewhat askance at direct participa- 
tion of the Government in trade and industry. To their 
minds the policy is fraught with danger. England 
during the centuries having established her commercial 
supremacy through private enterprise, and the danger 
of Germany disputing that supremacy being removed, 
they see no need of changing the old order. But these 
objectors are in the minority. Nor is the change so 
great as it appears to them. At least this is true in so far 
as relates to foreign trade. It is one of form rather than 
of substance, a change from a passive to an active atti- 
tude, but in no way affecting the paternal concern of the 
Government in the trade of British subjects. 

In the past the British Government almost auto- 
matically reflected the will of British business interests 
throughout the world. They were so widely extended 
and so potent that its protection and extension often was 
carried out without conscious motive. The colossal 



BRITISH TRADE POLICY 109 

British capital invested abroad, which formed the out- 
let for British industry made known its will, and the 
Government responded. In the future, instead of the 
Government being the agent, it becomes the principal. 
It initiates, and trade and industry become its instru- 
ments. But always and everywhere, and in whatever 
degree imperial preference may be made effective, Brit- 
ish interests will be the key to British policy. 



CHAPTER VIII 

AMERICAN TRADE POLICY 

Historic background — Commercial character of early diplomacy — 
Treaties after the Civil War — Blaine reciprocity conventions — Ding- 
ley Bill provisions — Cuban reciprocity treaty — Canadian reciprocity 
agreement — Adoption of double tariff system — Maximum and mini- 
mum experiment — Repeal by Underwood Act — Review of favored na- 
tion practice — Reasons for conditional interpretation by United States 
— Diplomatic correspondence — Cuba and other exceptions — Conclud- 
ing resume. 

AMERICAN commercial policy on its foreign 
side, though vaguely defined, is distinctly na- 
tionalistic. Viewed in retrospect, this is 
clearly seen. The prospect may be gathered from it. 
The interests of the people of the country have been 
treated as paramount, but without prejudice to friendly 
intercourse with other peoples and recognition of the 
special economic circumstances of other countries. Def- 
inite affirmation is one of the essentials of the position 
of the United States as a world power in the new era 
of international commerce. 

The historic background, from the time when Thomas 
Jefferson urged reciprocity as the true principle of 
commerce, affords suggestion. Theodore Lyman, an 
acute contemporary observer of American diplomacy 
during the first half -century of the national existence of 
the United States, asserted that the War of the Revo- 
lution was in itself, in principle, a commercial one. He 
remarked : 

110 



AMERICAN TRADE POLICY 111 

We were not concerned with the dynastic questions and 
boundaries, and political balances of power that entered into 
the diplomatic relations of the European countries. The 
people, with as little capital as credit, immediately entered 
upon a course of commerce. . . . The political relations of 
the United States with Europe became at once minute and ex- 
tensive because the commerce of the country was so. On 
that account our diplomacy may be termed altogether of a 
commercial character; at least its legitimate origin being in 
commerce, our treaties, for the most part, have consisted of 
arrangements for the regulation of trade and navigation.^ 

" The best book on political economy in that new 
country," wrote Friedrich List later, " is the volume of 
life." The Tubingen professor of political economy 
drew his conclusions from personal experience. As a 
Pennsylvania farmer and publisher, as a coal-mine oper- 
ator and pioneer railway-builder, he absorbed the idea of 
nationality in trade and industry, and returned to Ger- 
many to write the work which laid the foundation for 
the German system of protection as developed by Bis- 
marck. 

The book of life, as it unfolded, became so distinctly 
a volume of internal development that gradually inter- 
national commerce as a chapter of national growth was 
obscured. In the decade before the Civil War the one 
important international trade arrangement was the Ca- 
nadian reciprocity convention of 1854, known as the 
Elgin-Marcy Treaty. This was both a diplomatic and 
a commercial agreement between neighbors. It pro- 
vided for the reciprocal privileges of fishing in the terri- 
torial waters of each country, and for the use of rivers 
and canals on equal terms as well as for the interchange 

1 " Diplomacy of thte United States," by Theodore Lyman : Boston, 
1827. 



112 AMERICAN FOREIGN TRADE 

of commodities. In the commercial sense Canada was 
the gainer since her natural products found a better 
market in the United States than the similar products 
of the United States gained in Canada, and there was no 
provision for the exchange of manufactured articles. 

Systematic attempts to expand the foreign market by 
means of trade treaties came after the Civil War. In 
some instances, as in the Hawaiian Reciprocity Treaty 
of 1875, the motive was a political one. The motive also 
had been political, or national, in the unratified treaty 
negotiated by Secretary Marcy in 1855. In the treaty of 
1875 one purpose was to hold the Pacific outposts. Aus- 
tralia, as an integral part of the British Empire, was 
the country then feared to be planning annexation, not 
Japan. Propinquity and other considerations were 
mentioned, as well as the free admission of Hawaiian 
sugar into the United States in return for commercial 
concessions which were not of equal value. 

The treaty which was negotiated by General Grant 
with Mexico in 1883 had as much a political as a com- 
mercial purpose. After ratification by the Senate, it 
was left ineffective through the refusal of the House of 
Representatives to pass the necessary enabling legisla- 
tion. The treaty negotiated with Spain during Presi- 
dent Arthur's administration also had a political as 
well as a commercial object. It related principally to 
the markets of Cuba, in which profitable concessions 
were granted on flour and other American products. It 
was withdrawn by President Cleveland before the Senate 
could act on it. 

The reciprocity treaties negotiated in 1890 were the 
direct outgrowth of Mr. Blaine's demand that the Mc- 
Kinley Tariff bill should afford the opportunity for en- 



AMERICAN TRADE POLICY 113 

larging the market of the United States in the Ibero- 
American countries in furtherance of the Pan-American 
policy of which he was the prophet and protagonist. As 
secretary of state under President Harrison, Mr. Blaine 
was unwilling to let slip the opportunity for the practi- 
cal application of his policy. His spectacular denunci- 
ation of the bill while it was in process of making, as 
not extending the market for a single barrel of pork or 
a bushel of wheat, caused a party majority to change the 
text and provide for limited reciprocity, on the basis 
of insuring some concessions for the products of the 
United States in return for the free admission of raw 
sugar, molasses, hides and skins, coffee and tea.^ 

Reciprocal arrangements were negotiated by John W. 
Foster as special commissioner with Brazil and other 
South-American and Central- American countries, with 
the British and Spanish West Indies, and with Santo 
Domingo. Germany and Austria-Hungary also con- 
cluded conventions with the purpose of insuring the 
market of the United States for their beet sugar. These 
treaties were nullified by the operation of the Wilson 
Tariff Act of 1894. 

The act of 1897, known as the Dingley Tariff, con- 
tained a remedy for the high duties it carried by pro- 
viding for reductions through international reciprocity. 
The reciprocity provisions were contained in two sec- 
tions.^ One section authorized the Executive to reduce 
the duties on argols, or crude tartars, champagne and 
high-grade spirits, paintings and statuary, in return for 
equivalent concessions of the products of the United 
States. Under it limited commercial arrangements with 

1 See Appendix A. Reciprocity Provisions of Tariff Laws. 

2 See Appendix A. 



114 AMERICAN FOREIGN TRADE 

several European countries were put into effect. A 
clause authorizing the President to impose duties on 
coffee and tea with the purpose of obtaining concessions 
for the products of the United States was not utilized; 
but a number of countries were brought within the 
broader section of the law under which additional ar- 
ticles could be given a reduction of twenty per cent, 
from the specified rates of the Dingley Act, or be trans- 
ferred from the dutiable to the free list. Reciprocal 
arrangements, negotiated under this section, required to 
be ratified by the Senate and approved by Congress. 

John A. Kasson, an experienced legislator and 
diplomat, acting as the representative of the adminis- 
tration, negotiated a series of treaties under this 
section, as well as under the argol section. The coun- 
tries making the agreements included several of the 
British possessions in the West Indies and Central- 
American Republic. The most important of the con- 
ventions were those negotiated with France and with the 
Argentine Republic. The latter was known as the 
Buchanan Treaty, taking the name of the minister who 
represented the United States at Buenos Aires. 

President McKinley's unavailing efforts to secure the 
ratification of these treaties is a comparatively recent 
chapter in American trade policy. They were unaccept- 
able to the party majority in Congress, and particularly 
in the Senate, because they covered some competitive 
products. With their failure the attempt to moderate 
the high duties of the Dingley Tariff Law by means of 
reciprocity treaties ended. 

The reciprocity treaty with Cuba stands by itself. It 
had a political as well as a commercial motive. It was 
negotiated by President Roosevelt's direction in 1902, 



AMERICAN TRADE POLICY 115 

when Cuba was just entering on the experiment of pro- 
tected independence under the shield of the United 
States. There were statesmen in Washington who 
recognized how greatly political stability and progress 
in self-government in the island depended on economic 
causes. Sugar is the dominating economic factor in 
Cuba. The treaty therefore provided for a uniform re- 
duction of twenty per cent, in the duties on Cuban sugar 
and molasses imported into the United States, as also 
on tobacco and fruits and the products of the soil or in- 
dustry. In return, products of the United States were 
given reductions in duty ranging from twenty to forty 
per cent. Entirely aside from its political character, 
the Cuban Reciprocity Treaty was a fair commercial 
bargain. The reduction in duties on articles imported 
into Cuba from the United States was a genuine equiva- 
lent for the reduced duty on Cuban sugar and tobacco in 
the United States. 

The Canadian Reciprocity Agreement submitted to 
Congress by President Taft in February, 1911, and 
enacted into law in the following autumn, was a mutual- 
trade bargain. It provided for the free exchange of a 
large variety of agricultural products, for reciprocally 
reduced duties on some manufactured articles, and for 
special rates on other articles which it was not possible 
to place on the basis of reciprocal rates. It contained 
special provisions to insure the United States obtaining 
print paper. In the interchange of natural products 
it was true that the Canadian producers had more to 
transport across the border than would be exported to 
them, yet American farmers, notwithstanding that they 
were misled into violent opposition, would have received 
marked advantages in the wider market for their agri- 



116 AMERICAN FOREIGN TRADE 

cultural products. The failure of the Dominion Parlia- 
ment to approve the agreement prevented a test of its 
value to the trade relations of the two countries. 

President Taft's innovation in presenting the Ca- 
nadian Reciprocity Agreement to the House of Repre- 
sentatives had much to commend it. It was not a formal 
treaty ; it was an agreement between the Government of 
the United States and the Government of the Dominion 
of Canada as to the conditions under which they would 
admit certain products into each other's markets. 

The agreement was transmitted simultaneously to the 
Congress of the United States and to the Parliament 
of the Dominion. In the United States the House of 
Representatives therefore took original jurisdiction, and 
the Senate acted after a bill came from the House, as 
is customary in tariff legislation. Objection was made 
that Congress could not modify a single provision with- 
out endangering the entire measure, but the practical 
aspect was that if new conditions arose during or after 
the pendency of the legislation the two governments 
could amend the agreement and submit the amendments 
to the respective legislative bodies. Actually, there 
would have been no more difficulty in securing amend- 
ments than happens with partizan tariff measures where 
members support the party bill and accept or reject only 
such amendments as come from the Ways and Means 
Committee. 

Another objection to the form followed in the agree- 
ment was that since a law of this kind is for no definite 
period, and since Congress may pass subsequent laws 
repealing or nullifying it, the method has not the value 
of .treaties, because these are for a fixed and definite 
period. Theoretically, this argument has force. In 



AMERICAN TRADE POLICY 117 

practice it has no weight. The reason is that Congress 
usually enacts tariff legislation without regard to treat- 
ies. The Wilson Tariff Law of 1894 destroyed the pref- 
erence given the products of Brazil and other countries 
under the Blaine treaties. They were for a fixed period, 
but they were terminated immediately when this law 
went into effect by its automatic operation in respect to 
the free list and the change in duties. 

The only recent instance in which Congress in enact- 
ing tariff legislation has scrupulously observed treaty 
obligations was in the Payne- Aldrich Act of 1909. This 
act specifically provided that nothing in it should affect 
the Cuban Reciprocity Treaty; but the further stipula- 
tion was made that its provisions as to several European 
countries with which limited reciprocity conventions 
covering several commodities were in force should not 
apply to these commodities until the treaties had been 
abrogated, after due notice by the Department of State. 

The Underwood-Simmons Law of 1913 provided that 
nothing in the act should abrogate, impair, or affect the 
Cuban treaty except the proviso to Article VIII, which 
was abrogated and repealed. Article VIII provided 
that during the existence of the convention no greater 
reduction than twenty per cent, on Cuban sugar should 
be allowed and no sugar the product of any other foreign 
country should be admitted at a lower rate than the 
existing one. This provision was put into the treaty 
as a Senate amendment at the insistence of the high 
protectionists, who did not intend that the Dingley rates 
should be lowered except to Cuba. 

The Tariff Act of 1918', however, destroyed the main 
consideration for reciprocity on the part of Cuba. It 
provided for free sugar after a brief period, and since 



118 AMERICAN FOREIGN TRADE 

sugar far surpassed the remaining Cuban products, the 
principal economic reason for the treaty ceased to exist. 
There was no reciprocal equivalent. Cuba might have 
considered the free-sugar market of the United States 
as worth having on the same terms as other sugar-pro- 
ducing countries, but there was no ground why she 
should give concessions of from twenty to forty per cent, 
on a large number of products of the United States to 
get what other countries obtained for nothing. 

The need of war revenue while the United States was 
still a neutral caused the free-sugar provision of the 
Underwood Act to be repealed. With the continuance 
of the duty, Cuba was not under the necessity of de- 
nouncing the treaty and withdrawing the preferential 
rates given products of the United States. 

Until the passage of the Payne-Aldrich Act all the 
trade conventions negotiated by the United States were 
on the basis of the single schedule system. This law 
introduced a new principle into American tariff policy, 
that of the double tariff. The form followed was an 
adaptation of the conventional tariffs of European 
countries based on two sets of schedules. Maximum and 
minimum rates were provided, the minimum being 
twenty-five per cent, lower than the maximum rates, or, 
as it was sometimes put, the maximum being twenty- 
five per cent, higher than the minimum rates. Nomi- 
nally, the maximum was the basic tariff. Virtually, it 
was not, since the minimum rates were accepted as the 
real measure of customs duties. 

Under this dual tariff commercial relations were ad- 
justed with one hundred and thirty-four countries. No 
nation sought to enforce maximum rates against the 
United States, and all received the minimum rates. 



AMERICAN TRADE POLICY 119 

The maximum and minimum provision was useful in 
securing removal of discrimination against cotton-seed 
oil and other American products. For the first time it 
enabled something to be effected by the diplomacy of 
commerce in securing more favorable treatment for 
American live stock and meat products under the re- 
strictions which were imposed by foreign governments 
exercising broad police powers in enforcing sanitary 
regulations. Some of the most acrid chapters in Ameri- 
can diplomacy were the record of controversies on this 
subject, particularly with Germany and France. 

When the Payne-Aldrich law was passed, the people 
of the United States were consuming the bulk of the 
meat production, and the question was not a vital one. 
Nevertheless, advantage was taken of the readjustment 
of the tariff relations to secure the removal of dis- 
crimination, which was practiced under administration 
construction and pure-food and sanitary regulations, al- 
though neither France nor Germany admitted that their 
regulations were utilized as disguised measures of pro- 
tectionism. The whole world, however, knew that the 
objection was an economic one insisted on by the power- 
ful agrarian aristocracy of Germany and by the French 
farmers who wanted American cattle and meats kept out 
of France. 

The maximum and minimum experiment was crude, 
but promising. Its operation showed distinct advan- 
tages though it also developed defects. Official recom- 
mendations for curing these defects, and giving the prin- 
ciple a more effective application had been made when 
political revulsion changed the party majority in Con- 
gress and the national administration. The tariff leg- 
islation following this political change was based on 



120 AJVIERICAN FOREIGN TRADE 

the single schedule system. The Tariff Act of 1913 car- 
ried a section authorizing the Executive to negotiate 
commercial treaties, which should be submitted to Con- 
gress ; but this provision gave the President no authority 
that he did not already possess. 

The historic background of American trade policy 
would be lacking without inclusion of the favored-nation 
treatment. In retrospect and in prospect it is equally 
important. 

The principle found expression in the first treaty of 
amity and commerce that the colonies were able to con- 
clude. This was the treaty with France, ratifications 
of which were exchanged at Paris in July, 1778. It 
contained the favored-nation clause in the form which 
afterward became the subject of controversy. The 
treaty of 1800 with France, which also contained the 
favored-nation article, expired by limitation in eight 
years, and was not renewed. The treaty for the cession 
of Louisiana recognized that concessions of a political 
character were a valid basis of exchange for concessions 
of a commercial character. France, however, disagreed 
with the interpretation which the United States put on 
the article providing that the ships of France should be 
treated upon the footing of the favored nation in Amer- 
ican ports. The misunderstanding was cleared by the 
treaty of 1831. 

In this convention the principal of reciprocity was 
recognized, and it was also recognized that, to be mutu- 
ally advantageous, political as well as commercial con- 
siderations should be taken into account. The United 
States agreed to reduce the duties on French wines for 
a period of ten years, in return for which France not 
only reduced the duty on long-staple cotton imported 



AMERICAN TRADE POLICY 121 

from the United States, but relinquished her claims 
and reclamations respecting the disputed article of the 
Louisiana Cession. 

The conditional construction put on the favored-na- 
tion clause by the United States has been reasonably 
uniform. In the earlier treaties navigation was a lead- 
ing feature of favored-nation treatment. The United 
States not only had a commerce of its own to carry, but 
was the carrier through its merchant marine of the 
commerce of other countries. Equality with the ship- 
ping of other nations in foreign ports was therefore 
important. 

One of the clearest expositions of the conditional 
construction was given a full century ago in somewhat 
unique circumstances. In the revolt of the Spanish- 
American colonies, the province of Buenos Aires had 
sent an agent to the United States, named David V. 
Forrest. He sought to be received as consul-general, 
and in making his request proposed special favors in 
return for recognition. John Quincy Adams, secretary 
of state, under date of May, 1818, wrote in regard to 
this aspect of his plea, and without reference to the 
political question, as follows : 

It had not been intended to suggest to Mr. de Forest that 
it was in any manner incompatible with the independence 
or sovereignty of a nation to grant commercial advantages 
to one foreign state and withhold them from another. If 
any such advantage is granted for an equivalent, other na- 
tions can have no right to claim its enjoyment, even though 
entitled to be treated as the most favored nation, unless by 
the reciprocal grant of the same equivalent. 

American national policy has been to secure identical 
treatment with favored-nation countries under identical 



122 AMERICAN FOREIGN TRADE 

or similar circumstances. The equivalence clause, 
which is specifically set forth in most of the commercial 
treaties, and inferentially stated in the others^ provides 
that commercial favors granted to third countries shall 
be enjoyed by the party claiming most favored-nation 
treatment gratuitously, if so granted, or for equivalent 
compensation if granted for a price. The French treaty 
of 1778, as previously stated, was one of the first in which 
the favored-nation clause was inserted. 

The Treaty of Ghent, following peace with England, 
stated the favored-nation treatment very clearly. The 
conditional construction as it has been adhered to 
by the United States, and has been upheld by the Su- 
preme Court, is set forth in the diplomatic correspond- 
ence of many administrations. One of the clearest ex- 
positions was that made by Secretary Frelinghuysen in 
the instructions to Mr. Bingham, the American Minister 
at Tokio, in 1884, in conection with a diplomatic con- 
troversy with England. In this communication the sec- 
retary of state said : 

The English contention has hitherto been, under the most- 
favored-nation clause of the treaties, that it is absolute, and 
that even when Japan may bargain with any power to give 
it a favor for an equivalent, the like favor must be granted 
to England without equivalent. 

The Japanese contention is the reverse of this, being that 
if a favor for a specific condition be stipulated with any 
one nation no other may enjoy the favor except upon iden- 
tical or equivalent conditions. 

The theory on which this Government views the question 
is akin to that of Japan. For example, the United States 
have just concluded a commercial treaty with Mexico by 
which each country especially favors the other by putting on 
its free list certain dutiable products. Under the favored- 



AMERICAN TRADE POLICY 123 

nation clause of our treaties with other nations we are not 
bound to give their products the benefit of our free list, even 
though such country may not impose any duty on the arti- 
cles which Mexico has free listed in our favor. But we would 
be willing to stipulate to give a third power the favor we 
give Mexico in exchange for some equivalent favor not gen- 
eral as toward the rest of the world.^ 

The bearing of the favored-nation clause as construed 
by the United States on reciprocity treaties is found in 
the diplomatic correspondence relating to the Hawaiian 
Reciprocity Treaty and the Cuban Reciprocity Treaty. 
In the case of Cuba, efforts to break the force of the 
agreement were made by several countries, notably by 
Germany. The United States declined to recognize the 
contentions put forward by foreign governments. There 
was not only the relation of proximity, but there were 
other special considerations, among them the exceptional 
nature of the status of Cuba in respect to the United 
States as recognized by the Cuban Constitutional Con- 
vention in incorporating the Piatt Amendment and in 
other ways. The contention was not seriously pressed 
by any of the foreign governments. Their representa- 
tions were more in the nature of manoeuvers to feel out 
the intention of the United States. 

After the Canadian Reciprocity Agreement was ne- 
gotiated, several governments also raised questions as 
to the application of favored-nation treatment. The 
representations were generally of an informal character. 
The United States consistently replied that propinquity 

1 For a concise review of the subject see " Reciprocity Treaties, Fa- 
vored Nation Clauses," by John Ball Osborne, of the Department of 
State, Senate Document No. 29, 62n(i Congress, 2nd Session. See also 
Moore's " International Law Digest " and the Tariff Commission's Re- 
port on Reciprocity and Commercial Treaties, 1919. 



124 AMERICAN FOREIGN TRADE 

and other considerations of a special character took the 
reciprocity agreement out of the favored-nation treat- 
ment. 

A paragraphic resume such as has been given in the 
preceding pages may be thought an inadequate presenta- 
tion of the historic element in tariff legislation and 
trade policy. But the American public mind is an im- 
patient public mind; it cares little for the past, and is 
willing to absorb the teachings of experience without 
moralizing on them, if there be any moral. The truth is 
that in the varying moods of the American people on 
the tariff as a domestic measure, reactions from 
one extreme to another, from tariff boosting to tariff 
smashing, and so on around the circle, have afforded 
small field for the evolution of a consistent policy in 
relation to foreign commerce. There was, moreover, the 
lack of interest in foreign trade as a means of expanding 
domestic production. But in the new era, with the 
world-wide developments, the imperative necessity exists 
of determining the basis of future trade relations. 



CHAPTER IX 

AMERICAN TRADE POLICY (CONTINUED)' 

Adjustment of United States commerce to competitive conditions — 
Flexible and inflexible tariffs — Defects in maximum and minimum pro- 
visions of the Payne- Aldrich Act — Amendment proposed by Secretary 
Knox — Rejected retaliatory clause in Underwood bill — Tariff Com- 
mission's approval of retaliatory schedules — Means of securing equality 
of treatment for American goods — Bargaining tariffs — House of Rep- 
resentatives as source of revenue legislation — Dyes and potash — Ex- 
port combinations — The Webb-Pomerene Law — Price-lists abroad and 
at home — Export railway rates — Objections to government control — 
Individual enterprise in foreign business. 

WORLD trade is competitive trade. That is 
one of the commonplaces of international 
commerce which the United States must 
recognize in determining its own policy. But 
there are other facts to be recognized as conse- 
quences of the Great War which must be taken in 
connection with the competitive nature of world trade. 
One is the resurgence of nationalism reflected in the 
fiscal and economic legislation of the several commercial 
nations. England in her adoption of imperial prefer- 
ence and in her measures for stimulating and fomenting 
British industry in its effects abroad is the most striking 
example. Yet other countries also supply illustrations. 
The United States must readjust its trade relations as 
they will be modified and affected by the policies of 
other nations. It must view the so-called neutral mar- 
kets in their detached aspect and also as influenced 

125 



126 AMEKICAN FOREIGN TRADE 

by the competition of European countries. It must de- 
termine the amount of protection which shall be given 
domestic industries in the light of the activities of the 
country seeking its market, as well as with regard to 
the revenues to be raised from customs duties. With 
a benign international policy already determined, it will 
not be possible, nevertheless, to ignore the knowledge 
that as a world power in international commerce the 
United States still believes in its own nationalism in 
commercial intercourse. 

Two lines of activity call for determination. One 
relates to the fiscal and economic policy which shall be 
formulated and made effective by the legislative branch 
of the government. The other relates partly to ad- 
ministrative measures resting on legislative enactment, 
and partly to the degree of participation or non-partici- 
pation of the Government in foreign trade. 

In making treaty arrangements it may be assumed 
that the United States will continue to adhere to the 
conditional favored-nation treatment. Nothing in the 
domestic situation calls for a change, and the readjust- 
ment of the trade policies of other nations does not 
furnish ground for the United States reversing its his- 
toric policy. Whether, in the commercial treaties ne- 
gotiated by European countries, the unconditional 
favored-nation clause be abandoned, or whether it be re- 
tained does not seriously concern the United States. 
The conditional construction has worked well for it and 
the tendency will be to assume that this construction 
will still work satisfactorily. 

A more vital question than favored-nation construc- 
tion relates to general tariff policy. The question of 
the future, in view of the economic policies in process 



AMERICAN TRADE POLICY 127 

of adoption by other countries, is whether American 
trade policy shall be based on an inflexible or a flexible 
tariff. This is said without regard to political views. 
What the United States wants in order to give free op- 
portunity for its expansion into foreign trade is equality 
in the markets of the world. 

This was the fundamental proposition on which the 
maximum and minimum tariff of 1909 was adjusted. In 
some instances where, from the nature of the trade inter- 
course, there could be no exact equivalency, the principle 
of compensatory concessions was adopted, though the 
main purpose was never lost sight of. This was that 
there should be no unjust discrimination against Ameri- 
can goods. The President, through his subordinates, de- 
termined in the light of actual circumstances what were 
unjust discriminations and what were just ones. That 
is, what were inherent in the conditions of the trade 
of the several countries which justified discrimination 
and what were unfriendly. The plan followed sought 
no favors for the United States; it merely sought free 
opportunity with other competitors in open markets. 

The defects of the maximum and minimum provision 
have been indicated in the previous chapter, together 
with some of the remedies proposed for overcoming them. 
They call for further exposition. The principal defect 
was the lack of adaptability. The mere enactment of 
two schedules or sets of duties gave little elasticity. 
The maximum schedule was, in fact, prohibitive, and its 
application to any country would have meant an out- 
right trade war, which could not have depended upon 
public sentiment for support. After the full possibili- 
ties of the tariff of 1909 had been exhausted, the neces- 
sity of a more elastic scale of duties became apparent. 



128 AMEKICAN FOREIGN TRADE 

Experience also demonstrated that under a dual tariff 
the establishment of a rigid free list was not good com- 
mercial policy. 

The Department of State, after an experience of two 
years in seeking equal opportunities for American goods 
in foreign markets, proposed a remedy. This was out- 
lined in a letter of Secretary Knox to the Ways and 
Means Committee in December, 1911. The secretary of 
state, after reciting the advantages which had been ob- 
tained under the maximum and minimum provisions, 
and the concessions made by various countries, explained 
where discriminations were still practised and where 
American trade was at a disadvantage. He remarked 
that similar instances of discrimination as between Eu- 
ropean nations found adjustment through means at hand 
for specific retaliation where conciliatory measures had 
failed. 

An amendment to Section 2 — that is, the section con- 
taining the schedules and the free list — was submitted 
by Secretary Knox. It provided for varying rates to be 
added to the minimum rate, not less than five per cent, 
ad valorem, and not exceeding twenty-five per cent., ap- 
plicable by proclamation when, through the investiga- 
tions made at the instance of the President, he should 
become satisfied that another nation^s laws or practices 
as relating either to tariffs or commercial methods hav- 
ing governmental sanction were inimical to that equal 
opportunity for trade and commerce to which American 
enterprise was fairly entitled. The secretary of state de- 
clared : 

It is realized that the gravity of the offense should be met 
by a suitable remedy, one that may be graduated to meet 
the degree of embarrassment sought to be corrected. This 



AMERICAN TRADE POLICY 129 

might call for the imposition of additional duties of from 
five to twenty-five per centum upon a few commodities, or 
it might require that all of a nation's exports to the United 
States should be made subject to rates of duty higher than 
the existing minimum. Instances might arise where, to sub- 
ject commodities now upon the free list to the payment of 
duties would be found to be the only measure of relief for 
offiensive treatment; or the prohibition of imports in aggra- 
vated cases might be necessary.^ 

An adverse political majority in Congress did not take 
kindly to these suggestions. The proposed amendment 
died in the Ways and Means Committee. The revulsion 
of political sentiment which continued until a national 
administration of the opposite party came into power 
resulted in the complete wiping out of the maximum and 
minimum principle in tariff legislation. Yet while the 
bill was under discussion, which resulted in the Tariff 
Act of 1913, consideration was given to the recommenda- 
tions made by the previous national administration. 

In the Senate an amendment was offered to the House 
bill which sought to meet the situation described, and 
to secure equality of opportunity for American goods in 
countries which might discriminate. The amendment 
provided that the President should have power to sus- 
pend the rates assessed upon the importation of certain 
specified articles, and to substitute new rates, which were 
set forth in detail. Among the commodities upon which 
increased duties were to be laid were fish, coffee, tea, 
lemons, chinaware, coal, cheese, wines of all kinds, malt 
liquors, knitted goods, silks, laces and embroideries, 
jewelry, sugar and molasses and wool. 

The amendment was adopted by the Senate, but was 

1 See Appendix Ai for text of the Knox amendment. 



130 AMEEICAN FOREIGN TRADE 

stricken out in conference with the House and the tariff 
of 1913 became effective without any provision for secur- 
ing equality of treatment for American products in for- 
eign markets.^ 

Experience with the tariff measure of 1913 under war 
conditions could not be looked on as a satisfactory 
means of determining whether or not retaliatory pow- 
ers were necessary. But the Tariff Commission, looking 
to the future and judging in the light of its own investi- 
gations, apparently reached the conclusion that means 
of retaliation are desirable. In its report on Reciproc- 
ity and Commercial Treaties it endorsed the principle 
of retaliatory schedules and made recommendations fol- 
lowing closely the maximum and minimum tariff pro- 
visions as they had been advocated by Secretary Knox. 
President Wilson in his message 'to Congress in May, 
1919, approved the recommendations of the Tariff Com- 
mission and endorsed the policy of previous national 
administrations in seeking means to secure equality of 
treatment for American goods abroad. The endorse- 
ment thus given to the policy of the Taf t administration 
and the principle embodied in the Payne-Aldrich Act 
therefore would seem to divest the subject of a partizan 
aspect. 

These concurrent views indicate the possibility of a 
return to the maximum and minimum schedules of a 
double tariff. Reciprocity of retaliation as well as reci- 
procity of benefits may be provided on a single schedule 
basis. Retaliation of this character was proposed in the 
rejected amendment to the Underwood bill with its sin- 
gle schedule, but the basis is too narrow for a broad 
national policy. The trading or bargaining tariff is 
much better adapted to the conditions which the United 

1 See Appendix A for text of the rejected Senate amendment. 



AMERICAN TRADE POLICY 131 

States will have to meet in the permanent adjustment of 
its commercial relations with other countries. Such a 
tariff assures both flexibility and elasticit3\ It lays a 
broad foundation for negotiation and for adjustment to 
special circumstances. With a definite affirmation of 
the intention of the United States to secure equality of 
treatment for its products in the markets of other coun- 
tries, the means must be provided and the flexible sched- 
ules, within defined limitations, become the instrument. 
The bargaining tariff assumes that the markets of the 
United States are a consideration to trading countries. 
The term is distressing to a class of international ideal- 
ists, but it is simply the recognition of the practical 
character of trade relations. They cannot be idealized 
out of existence. 

In the fiscal legislation of the future friction would 
be avoided by the recognition, fundamentally, that under 
the Constitution revenue legislation originates in the 
House of Representatives. While the Executive, in con- 
junction with the Senate, constitutes the treaty-making 
power, the House of Representatives so often has vindi- 
cated its right to share in this power when revenue legis- 
lation is embodied in treaties that the question no longer 
possesses even an academic interest. The true policy 
would be, after establishing a double tariff system with 
maximum and minimum duties, to lay down the basis 
on which trade treaties shall be negotiated. 

Congress, under this plan of legislation, might specify 
the articles on which reduction of duties shall be granted, 
or on which duties shall be increased, and also articles 
on the free list which may be made dutiable, and the 
range of duties which shall be levied on them coming 
from any country which discriminates against the pro- 



132 AMERICAN FOREIGN TRADE 

ducts of the United States. The Executive should be 
left to determine whether such discrimination exists, and 
then automatically to apply the schedules provided by 
Congress. The common objection made to this propo- 
sition is that it vests legislative authority with the Ex- 
ecutive, but the same objection is raised to any legisla- 
tion that leaves a certain amount of discretion with the 
President. In commercial relations discrimination, 
after all, is a matter of fact and not of opinion. When 
Canada gave Italy, for example, a lower rate on electri- 
cal goods than was given the United States on similar 
goods, that was discrimination. Provision also should 
be made for meeting discrimination against American 
trade and industry through export duties, whether they 
be imposed by independent nations or by colonies and 
dependencies. 

Little of the war legislation enacted by Congress was 
of a tariff nature or had relation to after-the-war trade. 
The chemical and dye industry was given encouragement 
against a possible German peace attack. This was done 
by the anti-dumping provision and the schedule of duties. 
The Government gave further support through the aid of 
its textile experts and the technical information which it 
has gathered on the whole subject. No direct financial 
subsidy was granted, as was done by England in estab- 
lishing her chemical and dye industry, and none was 
wanted. Whether the provisions in the peace settlement 
and the further tariff legislation are suflQcient to pre- 
vent German dumping can be decided only by experience, 
but there would seem to be no serious danger. What 
ihe dye and chemical industries have to meet in the fu- 
ture is the possibility of competition from the state-aided 
British dye and chemical industry. 



AMERICAN TRADE POLICY 133 

Potash presents a situation which also calls for pro- 
tective legislation. Before the war this raw material of 
agriculture was thought to be as much a natural monop- 
oly of Germany as the soda nitrates are of Chile. In 
the early months of hostilities some of her boastful econ- 
omists even declared that she would starve the agricul- 
ture of the United States so that it would not dare to be- 
come a belligerent. 

The war quickened the activities of the Government, 
which had concerned themselves with seeking means of 
utilizing the seaweed, or kelp, of the Pacific, and also 
with prospecting the regions of possible discovery. Pot- 
ash lakes were discovered in Nevada and Utah. The 
manufacture of potash from blast-furnace dust and from 
other by-products was also attempted successfully. A 
genuine potash industry was thus evolved out of the war 
necessities. The fostering care of the Government may 
be further necessary to bring it to a successful issue, but 
this essential raw material of agriculture ultimately will 
be supplied by the domestic production. 

The principal measure enacted by Congress during 
the war period for the extension of American foreign 
trade was passed before the United States became a bel- 
ligerent. This was known as the Webb-Pomerene Act. 
It was recommended in a stirring report by the Federal 
Trade Commission. A paragraph relating to the great 
world trade power which since the war has entered on a 
new course of amalgamations and combinations with 
governmental direction and participation is illuminat- 
ing. The report said: 

British manufacturers have relied upon an unusually ef- 
fective merchandising organization for foreign trade, long es- 
tablished in foreign markets, and giving British products 



134 AMERICAN FOREIGN TRADE 

a superior representation there; but in various important 
industries they have gone much further. The most of the 
great coal export business is done by powerful organizations 
combining mine operators, marketing companies, shipping 
lines, and foreign distributing companies. This gives British 
coal its grip on the rich South American market. British 
cement manufacturers are united in a strong and successful 
union for the extension of their overseas trade. In the elec- 
trical, cotton textile, pottery, tobacco, wall paper, iron and 
steel, and various other industries, strong associations and 
combinations are important factors in foreign and domestic 
business. . . . 

Combinations of British coal brokers fix the contract price 
for bunkering ships at Newport News. Four London firms 
known as the Fixing Board daily set the price of silver for 
the world, and American mining companies must sell their 
silver for either the English or the great Indian market 
to one of these four houses. . . . These combinations con- 
stantly make individual producers bid against each other, 
and are thus able to buy at prices near or below the cost 
of production. By such tactics the present contract price 
for bunkering ships in Hampton Roads has been fixed at five 
to seven cents per ton below the domestic price.^ 

The Webb-Pomerene Act was in reality of a negative 
character, since the purpose was to relieve exporters who 
might combine for foreign trade from the penalties pro- 
vided by the anti-trust laws against combination in do- 
mestic trade. The measure was specifically entitled 
" An Act to Promote Export Trade." It showed a clear 
perception of the circumstance that world trade is com- 
petitive trade, and it undertook to place the manufactur- 
ers and exporters of the United States in a position to 
compete with other countries. They were specifically 
inhibited from doing anything at home or abroad to re- 

1 Report of the Federal Trade Commission on cooperation in Amer- 
ican export trade, Washington, 1916. 



AMERICAN TRADE POLICY 135 

strain the export trade of any American competitor. 

Abroad, and especially in South America, the law was 
looked upon with some suspicion. It was criticized as 
a measure to enable manufacturers in the United States 
to dump their goods in foreign countries and to estab- 
lish trusts which would dominate the foreign market. 
The critics overlooked or misinterpreted the fact that the 
law does not permit combinations in manufacturing, but 
only in selling. It has little similarity to the German 
syndicates, or Kartells^ since Germany permitted, and 
even encouraged, combinations in the home market. Ac- 
tually one motive was to enable American manufacturers 
to meet the competition of the German Kartells^ for at 
the time of its enactment legislators could not foresee 
how completely Germany as a world trade power would 
disappear from the map. 

After the armistice was signed, the disposition of 
American manufacturers to take the Webb-Pomerene Act 
at its full worth became very marked. It was seen that 
many advantages could be derived from cooperation as 
a single organization by numerous af&liated industries, 
some of them competitors at home. Many export asso- 
ciations therefore were formed. Basically, this meant 
going into foreign trade on a wholesale instead of on a 
retail basis. Experience will be necessary to demon- 
strate the full value of these combinations to domestic 
industry. It also will demonstrate what is structurally 
weak in the legislation, and further legislation doubt- 
less will be required to make the original law fully ef- 
fective. But the right to combine in export business, 
and the value of such combination in foreign trade, is al- 
ready fixed as a principle of American trade policy. 

Some other factors in foreign trade have not yet been 



136 AMERICAN FOREIGN TRADE 

given recognition. They do not require legal sanction. 
Among these is the question of prices. Since world 
trade is competitive trade, it necessarily is largely a 
question of prices. Quality, credits, adaptation to local 
peculiarities, established trade connections, transporta- 
tion facilities, international exchange — all these enter 
into it ; but in its broadest and most comprehensive sense 
the country whose manufacturers can sell in another 
country continuously at the lowest price is bound to get 
the trade. The American manufacturer, whether a sin- 
gle firm, a great corporation, or a combination of com- 
panies acting as an export association, who cannot meet 
this condition will be unable to get a foothold and main- 
tain it. 

This opens up the whole policy of selling goods at 
lower prices abroad than at home. A stigma has been 
put on the practice because lower export prices than do- 
mestic prices was a distinctive feature of the German 
state policy. It also has entered into the sale of British 
goods more than appears on the surface. 

The plan has never been popular in the United States. 
It has been the familiar theme of denunciation by politi- 
cal orators. Manufacturers have found their catalogues, 
giving lower prices abroad than at home, quoted against 
them as a heinous indictment. It has been useless for 
them to seek to explain that the question is one of aver- 
aging overhead charges and keeping their factory ca- 
pacity fully employed in order that there may be real 
economy in production. Nevertheless, the situation is 
one that has to be met squarely. 

In the future expansion of American trade it will be 
even a bigger question than in the past, because of a 
competition that will be more powerful than the compe- 



AMERICAN TRADE POLICY 137 

tition of Germany ever was. Are the American people 
willing that this competition be met? If so, they must 
make up their minds to acquiesce in seeing many Amer- 
ican products sold abroad at lower prices than are ob- 
tained at home. Yet this does not mean that the prac- 
tice need become universal, or a cardinal point of trade 
policy. It simply means that specific situations must be 
met as they arise. 

Another question relates to the granting of lower rail- 
way rates on goods for export. It was instituted by the 
railroads and was upheld by the Supreme Court. For 
example, iron and steel products for export were given 
a discount of thirty-three and one-third per cent, from 
the domestic rate. This was German practice, but it 
was British practice, too. In the economic protection, 
or new protection policy of England, these lower rates 
promise to loom largely. This is notwithstanding the 
geographical situation of the industrial centers of Eng- 
land with their closeness to the seaboard, and no such 
thing as a long haul. It is another instance of the cer- 
tainty that foreign trade policy cannot be based on ab- 
stractions. The American policy cannot ignore the pol- 
icies of other commercial nations. Special export rates, 
however, have been merely the offset of special import 
rates. The Interstate Commerce Commission provided 
import rates to interior points from the seaboard lower 
than the ordinary rates, and this practice was frequently 
criticized as an indirect means of lowering protective 
duties. The real purpose was a transportation one. 

American tendencies in foreign trade have shown 
themselves to be wholly distinct from the tendencies of 
the European nations. The functions of the Govern- 
ment are clearly indicated. American business men do 



138 AMEKICAN FOKEIGN TRADE 

not want too great or too much official interference eren 
for beneficial purposes. The Government, through its 
numerous agencies, gathers and puts at their disposal 
technical and other information regarding foreign mar- 
kets. It removes certain obstacles to their ability to 
compete in those markets. It now assures them ships 
to carry their cargoes, but it does not undertake to regu- 
late the processes of their foreign sales. 

Both the American theory and the American practice 
are to avoid over-regulation. The fewer restrictions on 
individual transactions the greater will be the facility for 
supplying the markets abroad. In other words, as little 
interference with business as possible. American man- 
ufacturers and exporters do not worry over the knowl- 
edge that they are competing not with the individual ex- 
porters of the United Kingdom or other European coun- 
tries, but with the state in the abstract, or the govern- 
ment in the concrete, so long as they are not hampered 
by their own government. 

Public sentiment indorses this view, partly as a re- 
sult of domestic conditions. During the war there were 
many patriotic persons filling responsible positions and 
exercising arbitrary authority who thought they saw how 
the country could be served in its foreign trade if they 
were allowed to exercise this arbitrary authority under 
peace. The great body of American public opinion, 
which acquiesced cheerfully in unlimited war powers in 
order to carry on hostilities, resented the abuse of these 
war powers as a means of establishing government con- 
trol of the transportation and telegraphic facilities. 

The reaction was reflected in measures relating to for- 
eign trade, although the general public had not the full 
knowledge of the effort to control this along theoretic 



AMERICAN TRADE POLICY 189 

lines that those actually in the business had. The strug- 
gle may not be completely ended, for bureaucracy was 
able to impress itself very deeply in the general business 
of the country. But whenever the issue becomes clear 
between bureaucracy, whether domestic or international, 
whether applied to domestic affairs or expanded into 
world trade, and individualism, it is reasonably certain 
that individualism will win. 

Bureaucratic control of trade and industry in other 
countries is not a convincing argument for Americans, 
American industries during the war did not seek govern- 
ment subsidies. In peace they do not ask subvention of 
corporations which may seek to engage in foreign trade. 
They do not ask that the Government become a partner 
in financial institutions which seek to become mediums 
of international commerce. To them the American pol- 
icy which gives the best promise of success in the compe- 
tition for world trade is the encouragement to individual 
effort by keeping it free from too much governmental 
control. This is the corollary of a national policy which 
assures freedom from discrimination and equality of op- 
portunity in the markets of all countries. 



CHAPTER X 

THE CARGO-CARRIERS 

Circumstances leading to revival of the merchant marine — The golden 
age of American shipping — Measures for its restoration — The war 
boom — Failure of tariff devices — Shipping Act of 1916 — Supple- 
mental legislation — Increased tonnage of the United States — The 
ship-building program — Questions of policy — The Seaman's Act — 
Reaction from government ownership — Competition with Great Britain. 

THE United States at last is afloat. This is the 
outcome of events before and during the Great 
War. It is a positive chapter of American trade 
policy. 

Eevival of the merchant marine had begun before the 
opening of hostilities. This was through the adoption 
of a program under which the Government was to enter 
into competition with private companies for the con- 
struction and operation of vessels. The policy was de- 
batable, but a principle was recognized in the legislation, 
and a condition was met in the actual shipbuilding pro- 
gram. The principle was that no commercial nation is 
self-supporting which depends on foreign bottoms, and 
that it is better for a country to pay its own people ocean 
freights than to pay them to foreigners. The condition 
was that if the promise of commercial expansion were 
to be realized, American shipbuilding must have a posi- 
tive place in that expansion. 

" We are perfectly justified,'' wrote an eminent Euro- 
pean economist in the early years of the present century, 

140 



THE CARGO-CAKRIERS 141 

" in believing that the United States will eventually re- 
gain its old-time prominence among maritime nations. 
The day, doubtless still far distant, when it does regain 
it will mark the extension of its economic influence over 
a very large portion of the world, if not over the entire 
world." 1 

The time was not so far distant, though the approach 
was gradual. To realize the extension of its economic 
influence, the United States must be in the position of 
controlling two thirds of the cargo-carriers of its own 
commerce. This is the aim of maritime nations. When 
the Great War began, out of an approximate world's 
gross tonnage of 49,000,000 tons the United States had 
less than 3,000,000 tonnage employed in foreign trade. 
When it opened hostilities with Germany this had in- 
creased only by a million and a half tonnage, part of 
which was due to purchases of foreign vessels to which 
registry under the American flag was permitted. 

It is a bootless labor to review the place which Ameri- 
can bottoms once held in the world's commerce and the 
causes of their disappearance. A few paragraphs will 
suffice for a resume which may serve as a background. 
The policy in the years following the Revolution was to 
encourage shipping as a national industry, and the recog- 
nition of the value of income from freights was unquali- 
fied. The differential tonnage dues were supported as 
the means of encouraging the national industry of ship- 
ping. This principle was fully established in the mari- 
time reciprocity treaties negotiated in the period from 
1815 to 1828. In all the controversies concerning the 
meaning of the favored-nation clause which grew out of 

i"TTie United States in the Twentieth Century," by Pierre Leroy 
Beaulieu: ^w York, 1906. 



142 AMEEICAN FOREIGN TRADE 

the tonnage dues, the United States rigidly held to the 
encouragement of native shipping. 

Under this policy the golden age of the American mer- 
chant marine was reached in the two decades before the 
Civil War. That was the era of the clipper trade, and 
the romance of voyages from New York to China and 
back by sailing vesssls which reported their own arrival 
in China by returning to port before any other vessel 
from there could return. The destruction of the wooden 
ships during the Civil War and the circumstances under 
which, following the war, England was able to replace 
4merican ships on the ocean, first with iron ships and 
then with steel ones, are chapters so recent and so con- 
troversial as not to require recapitulation. 

How far England's deliberate policy was to prevent 
the reconstruction of the American merchant marine, 
how far internal conditions in the United States result- 
ing from industrial development in interior cities af- 
fording better chances of employment than the seaport 
cities, how far the restrictions imposed on shipbuilding 
in pursuance of the protective policy of buying material 
and employing labor at home, prevented the revival of 
the shipping industry are now purely speculative ques- 
tions. The failure to provide adequate subsidies and 
subventions is not entirely speculative. The restora- 
tion of the merchant marine through government aid was 
a blank chapter. A few mail subsidies grudgingly 
granted had no effect in the absence of cargo subsidies. 

Although the political party that favored the princi- 
ple of subsidies was in continuous power for twelve years 
in the White House, and for the greater part of this 
period in both branches of Congress, it never was able 
to enact the legislation which was considered essential 



THE CARGO-CARRIERS 143 

to the rebuilding of the American merchant marine. An 
expiring effort was made during President Taft's admin- 
istration, when a bill granting a yery mild measure of 
subvention to vessels in the South American and Panama 
Canal trade was passed in the Senate by the casting vote 
of the Vice-President, but failed to get through the House 
of Representatives. 

After this failure the prospects seemed hopeless; yet 
this was really the end of the period of discouragement. 
There was slow, but sure, recognition that something 
must be done to reestablish the American merchant ma- 
rine and at the same time to foster foreign trade by pro- 
viding greater shipping facilities. A number of legis- 
lative and executive acts w^ere the evidences of this rec- 
ognition. In the Panama Canal Act the shipping laws 
were amended so as to permit American registry for for- 
eign-built vessels owned by citizens of the United States. 
The provisions in regard to the employment of sailors 
not citizens of the United States were also liberalized. 

Direct effort to utilize American shipping as a means 
to free trade or lower tariff was contained in the Under- 
wood-Simmons Act of 1913 in a provision granting a dis- 
count of five per cent, in tariff dues on goods imported in 
American bottoms. This w^as a revival of the policy, 
under another name, of discriminating duties. It was 
similar to the tariff act of July 4, 1789, which allowed 
a discount of ten per cent, of the duties upon imports 
into the United States in ships built and owned by Amer- 
ican citizens. This system of discriminating duties was 
changed by the act of 1794, so that instead of a discount 
of ten per cent, in favor of American vessels, a surtax 
of ten per cent, was charged on goods in foreign vessels. 
The difference was that between encouraging the mer- 



144 AMEKICAN FOREIG:Nr TRADE 

chant marine by means of protective duties or by means 
of duties designed to lower protection. 

The Underwood proposition was to lower protection. 
When this provision was pending, the diplomatic repre- 
sentatives of several of the countries which had treaties 
with the United States containing clauses to the effect 
that there shall be no discrimination in customs duties 
on goods imported into the respective countries, whether 
such goods be imported in vessels of one country or the 
other, directed attention to the treaties. The nations 
with which the United States had treaties containing this 
stipulation were the Argentine Republic, Austria-Hun- 
gary, Belgium, Bolivia, Colombia, Costa Rica, Denmark, 
Great Britain, Greece, Honduras, Italy, Japan, Liberia, 
Holland, Paraguay, Spain, and Norway and Sweden, 
Germany also claimed it under the old treaties with the 
Hanseatic Republic, Mecklenburg-Schwerin and Prussia. 

Notwithstanding these remonstrances and in the face 
of the opposition of the Department of State, and of 
an opinion by the attorney-general that the discount pro- 
vision was in violation of the treaties, the authors of 
the bill insisted on retaining it, and it was passed by a 
partizan majority. The matter was taken to the courts, 
and, when the question reached the Supreme Court, the 
provision was declared invalid. This ended the efforts 
to revive the merchant marine through lowering tariff 
duties. 

Genuine revival came through the stimulus of extraor- 
dinary profits in the early stages of the Great War. That 
was when the destructiveness of the German submarines 
began to be felt and it seemed as though the greater part 
of the tonnage of the Allies would disappear. It is a 
stirring chapter in gainful enterprise, that purchase of 



THE CARGO-CARRIERS 145 

old hulks, some of them already under water, and their 
sale and operation at an enormous profit. Despite the 
reckless nature of the business, few disasters due to un- 
seaworthiness were recorded. 

Hostilities, when still limited to the European bellig- 
erents, did something more than to stimulate the old 
hulks industry. They revived American shipbuilding on 
a scale never before dreamed of. The demand for cargo- 
carriers convinced capitalists that after peace came com- 
petitive conditions in world trade would be such that 
shipbuilding could be maintained as a permanent na- 
tional industry. In the meantime there was the extraor- 
dinary profits of the cargo-carriers. The war boom was 
characteristically national in its exuberance. Muni- 
tions manufacturers reaped trifling profits on an in- 
vestment basis compared with the profits of the cargo- 
carriers. In August, 1914, the rate on grain from New 
York to Liverpool was four cents a bushel ; in the spring 
of 1917 it had risen to forty cents a bushel. Cotton was 
shipped to England in 1914 at fifty cents a hundred 
pounds. In two years the rate had risen to four dollars 
a hundred pounds. All the time the work of construc- 
tion was pushed at a rate previously unheard of. 

When the United States declared a state of war with 
Germany, every shipyard in the country was going for- 
ward at a runner's pace. The condition of belligerency 
brought all the energies of the Government and all its 
resources into the shipbuilding industry. The emer- 
gency needs of the Allies had given the initial impetus. 
The emergency needs of the United States gave the per- 
manent impulse. 

The country was not without preparation for a na- 
tional policy. There had been legislation based on the 



146 AMERICA:Nr FOREIGN TRADE 

program of providing an American merchant marine and 
the extension of foreign trade by this means. There also 
had been legislation based on humane motives which, it 
was asserted, would interfere with the operation of ships 
when once built. A review of the whole subject is neces- 
sary in order to fix the status of the American merchant 
marine. 

The recognition of the principle of paying freights to 
a nation's own people rather than to foreigners is in con- 
travention to the school of political economists, who hold 
that no artificial means should be taken to foster ship- 
ping any more than to foster domestic industry. The 
theory is that the only sound policy is to buy cargo space 
where it can be bought most cheaply, and the assumption 
is that with various maritime countries competing for 
traffic the buyer will get cheaper transportation than if 
he had to buy it from a national merchant marine built 
up by subsidies or other means of governmental encour- 
agement. The theory of absolute freedom of commerce 
thus exemplified takes no notice of the benefit of paying 
these ocean freights to national instead of to foreign 
shipping lines and keeping the money in circulation at 
home. Its repudiation by all political parties in the 
United States makes further discussion of it unneces- 
sary. 

An opportunist national administration, nominally 
based on Jeffersonian political principles, was the in- 
strument of adopting the Hamiltonian theory of the func- 
tions of the Government as applied to the merchant ma- 
rine. The American people, despite their conservatism, 
have little reverence for political traditions. The con- 
viction had been reached that something should be done 
to revive American shipping, and they were indifferent 



THE CARGO-CARRIERS 147 

whether or not it was comformable to the reminiscences 
of the Jeffersonian era. The real difference of opinion 
was regarding methods. 

The shipping legislation originally proposed by the ad- 
ministration of President Wilson was objectionable to a 
large body of public opinion because of its government- 
ownership background, and not because of its recogni- 
tion of the principle of subsidies or subventions under 
another name. Able political leaders know that when 
a bad name has been given something, the object which 
is sought may be carried out by changing the name. 
Though there may be some political taunts at the re- 
versal of policy, good political generalship recognizes 
that this is merely superficial and that the public will 
take it good-naturedly and not be too censorious on the 
change of front. 

The Shipping Law enacted in 1916 was different from 
the form in which it was originally recommended by the 
national administration. The opposition to government 
ownership was so strong that this proposition was aban- 
doned. The leading provisions of the law are those 
authorizing the Shipping Board that was created to have 
constructed and equipped, or to purchase, lease, or char- 
ter, vessels suitable, as far as the commercial require- 
ments of the United States may permit, for use as naval 
auxiliaries or army transports or for other naval or mil- 
itary purposes. The board was authorized to charter, 
lease, or sell vessels thus acquired to private persons, 
citizens of the United States. An appropriation of |50,- 
000,000 was made for the capital stock of a shipping cor- 
poration the majority of which stock should be owned by 
the United States. At the expiration of .five years from 
the conclusion of the European War the operation of 



148 AMEKICAN FOREIGN TRADE 

vessels by the corporation ceases and it is to be dissolved. 
The Shipping Board therefore may then sell, lease, or 
charter the vessels acquired. 

The shipping corporation was formed with the Pan- 
ama Canal builder, Gen. George W. Goethals, at its head ; 
but instead of |50,000,000 when the United States became 
a belligerent. Congress placed an additional |500,000,000 
at its disposal, and its work was begun as a part of the 
military operations of the Government. It superseded 
the war activities of the privately owned shipping lines. 

The half billion dollars was added to with unstinted 
hand by Congress, and the shipbuilding program that 
was entered upon was staggering in its scope. It is not 
necessary for the purposes of this work to review the 
total cost, the billions that must be written off, or the 
other details of the program. What stands out is that 
in the midsummer of 1914, out of a total steam seagoing 
merchant tonnage of 41,225,000 gross tons, the United 
States possessed 2,706,000 gross tons. Four months 
after the armistice was signed, with new construction re- 
placing war losses, the total tonnage was approximately 
37,100,00 gross tons. The United States possessed 5,- 
500,000 of this tonnage. But it also possessed the great- 
est shipbuilding instrumentalities of any nation in the 
world. ^ 

The completion of the government shipbuilding pro- 
gram assures 10,000,000 tons. Judging from the experi- 
ence of peace years, the world's commerce from 1920 on 
requires approximately sixty million tons. One sixth of 
this amount is not a large percentage, but it is a sufficient 
beginning and insures a reasonable amount of ocean 

1 Report of E, N. Hurley, Chairman, United States Shipping Board, 
1919. 



THE CARGO-CARRIERS 149 

freights and insurance in the form of cash to be kept at 
home. The vital question of the future relates to the 
conditions of competition. Some of these can be deter- 
mined by the United States itself. Others will not be 
dependent on domestic policy. 

Sharp controversy was developed over the passage of 
the Seaman's Act in 1915. It was treated by some of the 
shipping companies as hostile not only to the revival, but 
to the continuance of the merchant marine. This was 
principally on account of the requirement that seventy- 
five per cent, of sailors on any vessel should be able to un- 
derstand English. Other provisions were alleged to give 
foreign companies advantages over American companies, 
since it was held that they were not subject to the re- 
quirements of the act. It was claimed that the expenses 
of operation would be so great under the law as to make 
the continuance of steamship service unprofitable. One 
company actually decided to go out of business, and sold 
several of its ships as a preliminary. 

While the act was open to objection, the tendency of 
some corporations to oppose welfare legislation on in- 
sufficient grounds was illustrated in this instance. The 
Department of Commerce, by a possible stretch of execu- 
tive authority, interpreted the law benignly. War con- 
ditions, with their soaring freight rates and the ability 
of the shipping companies, out of their enormous earn- 
ings, to pay high seaman's wages, ended the uncertainty 
temporarily. Then followed the complete government 
control of shipping. 

The Seaman's Act, with its humane provisions, un- 
doubtedly requires amendment. But there is no reason 
to assume that it can be amended only by destroying 
the humanity in it. The question is one for adjust- 



150 AMERICAN FOREIGN TRADE 

ment by practical legislators giving due account to the 
experience of those who have espoused the sailor's cause 
and to broad-minded ship-owners. The cost of fuel is 
more important than the cost of labor. 

Respecting general policy, the reaction from govern- 
ment control and operation of the railways destroyed any 
prospect that might have existed of developing a wide- 
spread public sentiment for permanent government own- 
ership and operation of the merchant marine. If the 
Government were to continue to own and operate the 
shipping lines, the ownership and operation of the rail- 
way lines would seem to be the corollary. Only in that 
manner could the full benefit of the monopoly of ocean 
transportation be obtained and maintained. Govern- 
ment ownership and operation of the merchant marine 
that it has created vanishes with the vanishing of gov- 
ernment railway ownership and operation. What super- 
sedes it is vital to the carrying trade. After the gen- 
eral policy is determined, supplemental legislation will 
be necessary, and in the course of years a code of ship- 
ping legislation will be evolved. In the meantime the 
United States will be in competition with its greatest 
trade rival, and the circumstances under which that com- 
petition will be conducted merit attention. 

England's merchant marine always has been a nation- 
alized carrying trade, although not directly owned and 
operated by the Government. It will continue such, 
probably with closer government control than in the past 
and closer cooperation with the land transportation 
lines. This will be made possible by the governmental 
control of the railways. The limited territorial extent 
of the United Kingdom, and the nearness of all commer- 
cial and industrial centers to the seaports, simplifies the 



THE CARGO-CARRIERS 151 

coordination of land transportation and ocean transpor- 
tation under state direction. At the beginning of the 
war Great Britain possessed 19,250,000 gross tons. Her 
net losses during hostilities were approximately 3,450,- 
000 tons. Under peace conditions her shipyards rapidly 
supplied the deficiency. In the year after peace the Uni- 
ted Kingdom may be said to possess shipping equivalent 
to that which she had at the outbreak of hostilities. 
Some of this is enemy shipping, and England's future 
contribution, therefore, may be said to be directed to 
making up the world deficiency instead of her own. 

The French merchant marine, in the international 
sense, may be looked upon as supplementing British ship- 
ping. France lost approximately a million tons during 
the war. This was a heavy proportion, since it 
amounted to nearly forty per cent, of the entire merchant 
fleet. These losses were partially compensated by turn- 
ing over enemy ships. The French shipyards, after the 
war, entered on reconstruction, and French shipping 
must be considered in the equation of the world's ship- 
ping ; but the clear indications of cooperation with Eng- 
land justify considering the British and the French mer- 
chant marine as allies in the competition for world trade. 
England starts with one advantage. This is the posses- 
sion of the world's coaling stations. The strategic im- 
portance of these coaling stations cannot be overesti- 
mated. Another advantage is her possession of the 
tramp steamer. That is peculiarly a British sea institu- 
tion. It is a commercial fleet in itself and must be reck- 
oned with in the shipping policy of the United States. 

In conclusion, it is clear that there are both domestic 
and international problems to be solved in determining 
the future of the cargo-carriers of the United States, but 



152 AMERICAN FOREIGN TRADE 

their existence is the chief thing. They are part of the 
American trade policy, and are an essential element in 
the foreign commerce of the United States. The United 
States, following the thought of the French economist, 
is already regaining its old-time prominence among mari- 
time nations. The day has come that marks the exten- 
sion of its economic influence over a very large portion of 
the world. But with many practical questions to be 
worked out, buoyancy over the prospect should not be al- 
lowed to expand into fl-amboyancy. The carrying trade 
of the world is not a flamboyant business. 



CHAPTER XI 

CONTINENTAL EUROPE AND THE UNITED STATES 

Vital economic changes — Factors in France's industrial reconstruc- 
toin — Colonial commerce — Dependence on American capital — Fiscal 
relations with the United States — Germany's subtracted raw materials 
— Melting away of Naumann's Mid-Europe dream — Past and pros- 
pective trade with the United States — Importance of copper and cot- 
ton — Austro-Hungarian remnants — ■ Belgium's rehabilitation — Italy's 
territorial expansion and industrial ambition — Import of capital — 
Scandinavian group — Spain and other countries. 

TWO vital changes in the map of Europe are the 
consequence of the Great War. Expanded eco- 
nomic France is one of them; contracted eco- 
nomic Germany is the other. Geographical expansion 
and contraction is an incident of both changes, but the 
geographical alterations are not the exact measure of the 
economic modifications. Boundary shiftings in Mid- 
Europe relate more to intra-national trade than to in- 
ternational trade. In some of the newly created states 
they have little significance outside a limited region. 

Importation of capital, principally American capital, 
is the chief factor in the rehabilitation of French indus- 
try. The nature of the industries entering into export 
commerce of France is the same that it was before the 
war. The genius of the French people as manifested in 
industrial products will find freer play in the future be- 
cause there is the assurance that these industries will 
not be interrupted by war. There is, moreover, the as- 
surance of the raw material resources conveyed in the 

153 



154 AMEKICAN FOREIGN TRADE 

restoration of the Lorraine iron-ore deposits and in the 
addition of the coal deposits of the Sarre. 

France can go forward in her industrial career with- 
out fear of check. The restoration of the iron-ore depos- 
its, and the control of the fuel which is necessary to their 
utilization, nevertheless are hedged with diflficulties that 
make their industrial potency a deferred one. The trade 
of France before the war was that of a stationary popu- 
lation. The productivity of the country was partly 
limited because of the slow growth of producers. The 
Marne, Verdun, the Argonne, in their roster of lost lives 
further diminish this productivity for a decade, if not 
for a generation. Yet there will be progress, and grad- 
ually France will resume her old position and go be- 
yond it. 

In the past much of her European trade was the result 
of loans to Russia, Turkey, and the Balkan States. 
These loans gave France participation in the railways 
and other industrial enterprises, and assured the pur- 
chase of materials in France. But greater than the 
business resulting from these investments was the de- 
mand for the French specialties. They were not depen- 
dent on anything but the French artistic sense. Cen- 
tral Europe for many years will not be a heavy purchaser 
of these specialties, but South America, the United 
States, and other countries which were not affected by 
the ravages of the war will be steadily growing buyers. 

French colonial trade is also likely to prove a recuper- 
ative force. Algeria and Tunis, and even Morocco, in 
their industrial and trade relations might be looked upon 
as an extension of the mainland of France. Their re- 
sources are as yet only at the threshold of development. 

Equatorial Africa is not of the immediate future, but 



CONTINENTAL EUROPE AND THE U. S. 155 

it, too, is a recuperative resource. Madagascar is more 
valuable in the commercial sense as a tropical possession 
than the French Congo. Indo-China promises better 
than either. The scattered overseas colonies such as 
Guadalupe and Martinique in the West Indies, Tahiti in 
the Society Islands, are worth passing consideration. 
They are items in world trade. 

The full extent of France's colonial possessions and 
their economic value were little appreciated before the 
war except by the students of international economics. 
Yet they w^ere a cardinal feature in French policy, devel- 
oped by statesmen who rejected the theory that because 
the French were a home people and not given to emigra- 
tion they could not develop into a colonial powder such as 
England. They must be looked to in the future as a sus- 
taining source. It is more than probable that the tariff 
policy which made their business valuable to France will 
be continued, especially since the adoption of imperial 
preference by England. The substance of this policy 
was uniform tariff treatment for the principal colonies, 
although there were some exceptions. The same general 
tariff applied to the colonies as to France herself. There 
were no duties on goods from the colonies imported into 
France, and France paid no duties on products exported 
to the colonies. 

The dependence of France on American capital for eco- 
nomic rehabilitation makes the commercial relations of 
the two countries of special significance. The nature of 
the commerce is simple. It is an exchange principally 
of raw materials such as copper and cotton, food stuffs 
and some forms of machinery, for articles of luxury. 
Champagnes and liqueurs, silks, fine textiles, the various 
articles of personal adornment which gratify the culti- 



156 AMERICAN FOREIGN TRADE 

vated taste and uncultivated vanity, all the great va- 
riety of artistic products which add to the refinement of 
civilization, were imported into the United States. 

In enacting tariff legislation all political organizations 
in the United States have favored the imposition of heavy 
customs duties on luxuries and articles of superior qual- 
ity. This has made the scale of duties applied to France 
seem harsh as compared with those on the products of 
other countries. France, in her own view, was penal- 
ized for being the most artistic nation in the world, and 
for having the soil and climate that produced the most 
exhilarating beverages. When tariff legislation was un- 
der consideration France usually protested in proper 
diplomatic form against the proposed duties as destruc- 
tive to French industry and certain to cause decreased 
exports. Nevertheless, the high schedules were imposed, 
and the trade did not substantially decrease. The grow- 
ing wealth of the United States gratified itself by aug- 
mented purchases of champagne and silks and fine tex- 
tiles and artistic products generally, so that after the 
brief interval of uncertainty which always follows tariff 
readjustment it was disclosed that France was still sell- 
ing heavily to the United States. 

In the future, when the French industries resume 
their normal production, the United States will be a 
more valuable customer than ever in the past. National 
prohibition will destroy the market that once existed for 
champagnes, but with the very large increase in the num- 
ber of persons who are able to buy articles of luxury the 
effect of this loss will be only temporary. 

American fiscal policy will recognize the special con-, 
ditions of French industrial rehabilitation. French fis- 
cal policy has not followed the course of the original sen- 



CONTINENTAL EUROPE AND THE U. S. 157 

timental friendship for the United States. It has taken 
a business view of the trade relations. The protective 
movement under M. Meline's leadership, which culmi- 
nated in the high tariff of 1909, while having the special 
purpose of the protection of agriculture, incidentally 
bore heavily on manufactured products from the United 
States. In the adjustment of the maximum and mini- 
mum tariff administrative concessions supplemented 
concessions on the schedules of customs duties, but the 
United States was not granted the full minimum tariff, 
on the ground that this was devised with special refer- 
ence to the commercial relations of France with other 
European countries. 

The American Government recognized the reasonable- 
ness of this contention. In the future further tolerance 
will unquestionably be shown. As an abstract proposi- 
tion, France might be expected to admit automobiles 
from the United States at a duty which would enable 
manufacturers to supply the French market. But 
France actually will seek to restrict the importation of 
American automobiles in order that her own motor-car 
industry may be built up, and the United States will not 
complain. 

Germany, before the war, had a foreign trade amount- 
ing to five billion dollars. The iron ore of Lorraine, the 
coal of the Sarre, the ore of Luxemburg, and the ore and 
coal of Silesia were the foundation of much of this trade. 
With these economic units subtracted, it would be diffi- 
cult to estimate what foreign commerce would remain 
had no other conditions been imposed by the victors ; but 
with the full terms imposed it is beyond the range of esti- 
mate what the foreign trade of Germany may be in 1925 
or 1930. Yet there is the inescapable fact that Ger- 



158 AMERICAN FOREIGN TRADE 

many must continue to be in world trade if she is to pay 
her war debts to the victors. 

Business with continental Europe — that is, with 
neighboring countries — will be the normal means of 
beginning. After that will come the overseas trade. 
The degree to which the politico-economic militaristic 
system developed this trade will be tested in the circum- 
stances which have eliminated militarism, and which 
have subjected the economic factors to the control of 
the victors. The literature of the German Kartell and 
of the entire system was so copious even before the war 
that its study required abundant leisure. During the 
war the tendency was greatly to exaggerate the effect of 
the German policy. This was natural, but its continu- 
ance is apt to give a wrong perspective. It may be re- 
marked again that German trade and industry were not 
the work of supermen. Nor was their growth entirely 
due to a definite policy formulated by men who planned 
long years ahead. German foreign trade in the five-year 
period immediately following Sedan — that is, from 1870 
to 1875 — was about the same as in the period from 1890 
to 1895. 

When Germany precipitated the war there had been 
some signs of a reaction from monarchial state socialism 
and from the syndication of industries. The national- 
ization of the coal mines had been effectively resisted. 
The early period of the war even showed a determination 
on the part of some of the industrial captains to oppose 
further nationalization after peace came. This was 
when it was assumed that Germany would be victori- 
ous, and as one of the results of victory would proceed 
to give expression to the state as the sole agency of 
industrial organization. Dr. Gustav Krupp, head of 



CONTINENTAL EUROPE AND THE U. S. 159 

the great works at Essen, in a lecture delivered in 
Berlin warned against any effort to nationalize the mu- 
nitions industry after the war. His views, while of 
little moment in Germany as a vanquished country, are 
of interest to some of the victorious countries. 

State management, he held, might be justified where 
purely domestic monopolies were possible; but where 
they had competition at home and abroad, the com- 
plications of state control with parliament in the back- 
ground must deprive any industrial undertaking of the 
absolute elasticity and freedom of movement essential 
at a given moment. He declared : 

When we realize the hardness of the economic battle with 
which we are inevitably faced against countries and peoples 
which still find salvation in the freest activity of their indi- 
vidual energies, we must all practice the greatest caution in 
the treatment of such fundamentally economic questions, and 
we must remind ourselves again and again how easy it is 
to take a step in the direction of increasing the influence of 
the State and how difficult it may be to retrace such a step 
however serious its consequences may prove to be.^ 

The trade of Germany with central Europe has found 
some prophets who in defeat revert to what was meant 
to be a marching song of victory. Notwithstanding 
the creation of new nations, they affect still to see the 
possibility of a central Europe such as the one which 
excited their imagination in the early period of the 
war. This was the middle-Europe scheme of Friederich 
Naumann. He expanded Fichte's idea of a self-con- 
tained commercial state. As a member of the Reich- 
stag he had openly antagonized the aims of the 
militaristic group. As Pastor Naumann, the social re- 

1 Extract from Berlin Lecture quoted by London " Timei." 



160 AMERICAN FOREIGN TRADE 

former, lie had advocated the welfare of the masses 
with less of state interference than characterized the 
German system. The thesis promulgated in his book, 
" Mittel-Europa," was that the economic and political 
frontiers of central Europe had turned against France 
after Sedan, and that the eastern frontier had been estab- 
lished by the Berlin Congress in 1878, and the Austro- 
Hungarian alliance in 1879.^ 

Germans, Magyars, Poles, Bohemians, and other 
races, he explained, had not yet formed a national type, 
and central Europe was still lacking development as 
a national unit. On the economic side it was proposed 
that central European commerce should be conserved 
by means of the various chambers of commerce and 
similar trade organizations. Free trade between Ger- 
many and Austria-Hungary was to be provided, and 
a joint policy was to be adopted in regard to traffic, 
taxation, and international finance. After that union, 
which of course meant the absorption of the dual king- 
dom by Germany, the expansion would cover the Bal- 
kans, and then Eastward Ho! Drag Nach Osten was 
the sop to the Pan-Germanists and the proponents of 
the Bagdad Railway. 

It was claimed for Naumann that he was really a 
protagonist of a new form of Teutonic idealism based 
on geographic unity. The Teutonic imagination for a 
time was responsive to his suggestions, and the book 
had enormous popularity. But if Nauman really was 
a proponent of a new form of idealism, the diseased 

1" Central Europe." A translation by Christobel M. Meredith from 
the original German of "Mittel Europa," by Friedrich Naumann: 
New York, 1917. 



CONTINENTAL EUROPE AND THE U. S. 161 

mind of German scholarship quickly gave a material- 
istic interpretation to his ideals. They were discussed 
in the aspect of expanding Germany's commercial in- 
fluence. The popular appeal of the book, as well as 
the appeal to the diseased scholastic mind was largely 
due to its tribute to Teutonic egotism. 

The geographic unity, of which Naumann dreamed, 
is destroyed by the new states that have been set up. 
The national type to be formed of Germans, Magyars, 
Poles, Bohemians, and other races is denationalized 
by the effort to conform the races, so far as practi- 
cable, to geographic lines. 

Yet some ideas in Naumann's book survive. 
Though geographical unity, as the basis of a Teutonic 
mid-European state, is unrealizable, geographic con- 
tiguity assures a definite amount of trade. Propin- 
quity counts for the exchange of products. Nearness 
assures markets. Germany, in the heart of central 
Europe, has many products with which she is able to 
supply her neighbors. This is the first step in getting 
ready for the foreign trade that means overseas trade. 

In the period before the war trade relations between 
the United States and Germany showed a very decided 
balance in favor of the United States. The German 
Empire was principally a purchaser of raw materials, 
and cotton and copper were the chief commodities im- 
ported. The United States supplied substantially all 
the cotton and much of the copper, along with some 
semi-finished products which became the raw materials 
of German finished products. At the outbreak of hos- 
tilities the exports from the United States to Germany 
were |332,000,000 annually, and the imports from Ger- 



162 AMERICAN FOREIGN TRADE 

many $189,000,000. The imports were chiefly textiles 
and chemicals and dyes, although there was a large 
range of miscellaneous commodities. 

The United States received favored-nation treatment, 
having the benefit of the conventional tariff rates. This 
concession was secured during the adjustment of the 
maximum and minimum tariff, the arrangement in force 
up to that time having been one in w^hich many American 
products were discriminated against. After granting 
the conventional rates, Germany, in making a new treaty 
with Sweden, failed to give a few American products, 
among them some rubber goods and crucible steel, the 
new rate, but this did not affect the general principle. 

What remains of the German Empire still requires 
cotton and copper from the United States. Although 
copper for the electrical industries might be obtained 
elsewhere, at premium prices, economically Germany 
cannot afford to make the attempt. The great German 
metal syndicate, with headquarters at Frankfort, which 
dominated the metal markets of the world and enabled 
Germany to buy metals cheaper than in the countries of 
production, is dead, never to be revived. Germany, 
therefore, will have to buy copper on the same terms as 
other countries, but this in itself is not an economical 
disadvantage. 

American cotton is absolutely essential to the German 
textile industries. The importation of these two 
products, cotton and copper, is therefore the basis of 
the future trade relations between the United States 
and Germany. What Germany will send to the United 
■States in return for them is one of the unsettled prob- 
lems. She will not be able to send chemicals and dyes. 



CONTINENTAL EUROPE AND THE U. S. 163 

and the probability is that she will have a larger balance 
of trade against her than in the past. 

Austria-Hungary was not a notable factor in the trade 
between the United States and central Europe. The 
total commerce both ways rarely reached $40,000,000. 
The exports consisted of hops, magnesite, which is the 
material used in lining furnaces, chinaware, and artistic 
products, such as Bohemian glass. The imports were 
principally raw materials, such as cotton and copper 
and tobacco for the government tobacco monopoly. 
Some agricultural implements were also imported, 
chiefly for the wheat-fields of Hungary. 

Bohemia supplied the greater part of the exports to 
the United States and the new Czecho Slovak state, of 
which Bohemia is the principal part, therefore will be 
the real trade factor in the partitioned Hapsburg Em- 
pire. 

Belgium receives a slight addition to her territory 
under the peace settlement, but it adds little to the 
martyred country's economic resources. Belgium's 
marvelous industrial organization had enabled her to 
build up a foreign commerce approximating a billion 
seven hundred and fifty million dollars. Though the 
imports exceeded the exports by a quarter of a billion, 
there was actually not an adverse balance of trade, be- 
cause a part of the imports were distributed to other 
European countries. The nature of the commerce was 
largely one of exchanging manufactured products for 
food products and raw materials of industry. 

Some of these Belgian industries, such as the manu- 
facture of glass, competed with American industries, 
and when Belgium was in the grip of Germany several 



164 AMEEICAN FOREIGN TRADE 

glass factories sprang up in the United States in order 
to meet the demand previously supplied by Belgium. 
The trade with the United States was approximately 
a hundred and ten million dollars, with the exports ex- 
ceeding the imports by forty per cent. It may be many 
years before Belgian industries are fully reconstructed, 
but that this will be done in time is a certainty, and the 
country will therefore continue an excellent market. 

Italy is one of the victor countries in which the eco- 
nomic expansion is not likely to be commensurate with 
the territorial expansion. The Austrian Tyrol, Tren- 
tino, and the shores of the Adriatic that are conceded 
under the peace settlement, have no great productivity. 
They add little to the natural resources except as may 
be required for domestic consumption. Notwithstand- 
ing the gratification of the national aspirations and the 
encouragement to national ambitions, Italy continues 
lacking in natural wealth. The new Italy requires cot- 
ton, copper, coal, and mineral oils for her industries, 
just as did the old Italy. The probability is that these 
will be needed in much larger quantities than formerly, 
because industrial development will be one of the chap- 
ters of the national political development. Nationalis- 
tic sentiment will tend to national industries, and fiscal 
and economic policies are likely to be molded in accord- 
ance with these aspirations. 

Cotton for the textile industry will be imported in 
increased quantities. The silk industry alone has the 
raw material at hand. Wool for the woolen mills comes 
principally from abroad. The production of flax is not 
sufficient for the linen industry, although it is a valuable 
domestic raw resource. The same statement may be 
made of jute. Hemp furnishes a native raw material 



CONTINENTAL EUKOPE AND THE U. S. 165 

for threads and textiles and cordage, with a surplus for 
export. 

Kaw silk is Italy's principal export product, along 
with fruits and edible oils. The quantities are not suf- 
ficient to assure a trade equilibrium, but they are enough 
to provide a satisfactory commercial movement. The 
likelihood is that Italy in the future will need to import 
capital as much as raw material in order to carry out 
her projects of industrial development. Machinery will 
be her essential element in the importations for new in- 
dustries. Much of the capital will be supplied by the 
United States. The United States will be a very im- 
portant agent in supplying industrial fuel. The trade 
relations of the two countries will have something like 
a spontaneous rapprochement. 

The Scandinavian countries and Holland formed a 
neutral group during the war. Their geographical situ- 
ation exposed them both to Germany and to England. 
At the same time it enabled them to supply food and 
to draw legitimate profits from both sets of belligerents. 
This they did without prejudice to their own interests. 
All these countries, while they suffered inconveniences, 
were made richer by the war, Sweden and Holland per- 
haps to the greatest extent, and then Denmark and 
Norway. They have no vast war debts to pay the in- 
terest on, and they have no ravages of war to be re- 
paired. 

The relation of the United States to the Scandinavian 
group and to Holland in the peace-after-war is not likely 
to be different from what it was during the peace before 
the war. The United States will continue to sell Hol- 
land wheat and other foodstuffs, and some manufac- 
tured commodities for the consumption of the Dutch 



166 AMERICAN FOREIGN TRADE 

people. Holland, however, may not receive the full 
geographical advantage of transit trade that she enjoyed 
in the past, since the quantity of manufactured products 
exported to Holland ports for distribution throughout 
central Europe is likely to be diminished. 

The Scandinavian countries receive from the United 
States raw wheat, flour, and other cereal foods which 
they do not produce in sufficient quantities for their own 
use. They also receive mineral oils and copper. From 
them the United States obtains principally wood pulp 
and special products. This is the normal trade relation, 
which is not likely to be altered. 

Switzerland is an isolated economic unit in the heart 
of central Europe. From the United States Switzerland 
bought food products and raw materials of industry, 
principally cotton. In exchange she sent the cotton 
fabricated into fine textiles and various articles of ar- 
tistic workmanship. That is the trade of the future 
as it was of the past. 

The Iberian Peninsula is a group unit isolated from 
the rest of Europe, and in overseas routes not so greatly 
isolated from the United States. Portugal's exports in 
the past were chiefly cork and wines. National pro- 
hibition destroys the market for wine and reduces that 
for cork-wood. Yet Portugal will require some products 
from the United States. She will pay for them in cash 
obtained from the sale of her products to other countries. 
Spain's commerce, present and prospective, is worthy 
of attention across the Atlantic. Her exports of wines, 
olive oils, and fruits have enabled her to maintain a 
favorable balance. She needs American coal and cotton, 
and a large variety of manufactured articles, especially 
iron and steel products. She needs also American capi- 



CONTINENTAL EUROPE AND THE U. S. 167 

tal, which goes into her railways and public utility 
enterprises. This means the purchase of material in 
the United States. 

In the larger sense continental Europe should be 
viewed as a whole. Enlarged France, diminished Ger- 
many, newly made central European states, the Scan- 
dinavian countries, and the Iberian peninsula, are all 
to be viewed in world trade with the United States as 
a potent factor in their commercial relations. 



CHAPTER XII 

RUSSIA AND THE NEAR EAST 

Constantinople as an international mart — The Black Sea a world 
lake — Jugo-Slavia and the Adriatic — Bulgaria and Rumania — No 
Balkan customs union — Greater Greece — American enterprise in Tur- 
key — Russian economic units — Survey of the whole — Commerce of 
the past — Trade relations with the United States — Territorial sub- 
traction — Agricultural and mineral resources that remain — Siberia's 
status- — Foreign capital the hope of the future. 

CONSTANTINOPLE, as a consequence of the 
Great War, becomes a world mart. The new 
American merchant marine brings the United 
States to this mart. The two forces react one upon the 
other. The balance of power in the near East was once 
described as the flaming sword on the road to Byzan- 
tium. The balance of power, as an economic element, 
disappears. The sword no longer flames. It is tem- 
pered and sheathed. The bar to commercial progress, 
because of political rivalries, is removed. Yet in the 
commerce of the future the United States may prove an 
unbalancing power to European trade expectations. 

Constantinople, no longer the pawn of European 
powers nor the prize of the world in Napoleon's sense, 
takes its rightful place as the gateway to an interna- 
tional commerce that is not conflned to the Old World. 
Freer Constantinople, neutralized and internationalized, 
is the recognition of the historic city of the Bosporus as 
the inlet and outlet of the Balkans as well as of the 
Black Sea, and the tributary region of southern Kussia 

168 



RUSSIA AND THE NEAR EAST 169 

and Asia Minor. But it is more. It is a world entrepot 
freed from the dead hand of the Turk. 

England, among commercial nations, has most cause 
to rejoice at this outcome. When the Trepoff Treaty 
of 1915 was made public, with the full acknowledgment 
by the Entente allies that Constantinople was to become 
Russian territory, the knowledge was accepted gloom- 
ily, but as one of the necessary consequences of the alli- 
ance with the great European-Asiatic power which for 
the time had held the German military machine in check. 
Yet there were forebodings of the future and of the de- 
gree to which the freedom of commerce of the near East 
might be hampered under the domination of the czars. 
The foreboding melted away with the vanishing of Rus- 
sia as a single power. 

Under the new conditions the Black Sea becomes a 
world lake instead of a Russo-Turkish lake. There is 
the Balkan back-wash, but there is also the assurance 
of free ports for other regions. Freedom for the United 
States, with its merchant marine in the ports of the 
Black Sea as in the open oceans, is likewise guaranteed. 
There is all this for England, too, ^nd also the Dan- 
ubian inlet, with the large volume of British commerce 
borne through it. Before the war this was more than 
half the total Danubian trade. 

The new map of the near East does not radically 
change the nature of the trade of that extensive region. 
Notwithstanding the political boundary-line, there is no 
distinct European-Asiatic frontier in its commerce. 
The opportunities for business are not dependent on 
racial and linguistic lines, and they are in some measure 
independent of the conflicts which are indicated by geo- 
graphical boundary-lines. 



170 AMEEICAN FOREIGN TRADE 

Jugo-Slavia both as to its resources and its trade 
is principally an Adriatic question, notwithstanding 
Serbia's outlet to the ^gean Sea. No Austria will ever 
again be able to coerce Serbia politically by blocking 
exports overland. No more " pig " treaties, under which 
Serbia was forced to make humiliating political conces- 
sions in return for the privilege of getting her small 
stock of surplus farm products to other markets, will 
be celebrated. Jugo-Slavia, as a whole, is less a farming 
region than Serbia as a part of the new state, though 
the principal resources of the new nation are, neverthe- 
less, agricultural, and the trade will be that of an 
agricultural country. The surplus farm products are 
to be exported, and farm implements and other manu- 
factured commodities to be bought in return. Some rail- 
road building will be necessary, and some minor indus- 
trial enterprises will start up. For these foreign capital 
will be required, and the country which furnishes the 
capital will get the bulk of the resultant trade. 

Diminished Bulgaria, notwithstanding the territorial 
contraction imposed by the peace settlement, still has 
considerable resources. These are principally, but not 
entirely, agricultural. The product best known to the 
world, attar of. roses, is not an unimportant element in 
international trade, but there are abundant resources 
of production in Bulgaria. After political readjustment 
the tendency will be to develop these resources, and 
again it will be a question of foreign capital. 

Rumania, territorially and in natural wealth, as a 
result of the war becomes the most important of the 
Balkan States. The oil-wells, notwithstanding that 
several years are required to restore them from the 
German destruction, have lost none of their productive 



RUSSIA AND THE NEAR EAST 171 

capacity. It is, however, in Rumania's grain-fields that 
the greatest natural asset lies. The reapportioned ter- 
ritory is partly wheat territory, and this adds to the 
quantity of cereals which Rumania will have for supply- 
ing Europe's food market. Agricultural machinery will 
continue to be among the leading imports, but there 
will also be a large variety of other manufactured com- 
modities. Rumania potentially and actually is the most 
favored region of the Balkans for the countries which 
seek markets abroad. The assurance of an outlet 
through the Black Sea is moreover a guaranty of na- 
tional progress. 

The remnant of Turkish territory left in Europe is 
principally agricultural. It may be viewed, however, 
in the economic and commercial sense as a part of the 
Balkan region. Its trade might be added to or sub- 
tracted from any of the Balkan countries without in- 
convenience. 

The project of a Balkan customs union to unite the 
countries economically, while they preserve their politi- 
cal identity, though a sound one, does not come within 
the realm of early probabilities. Racial and religious 
antagonisms are too pronounced, and political antipa- 
thies too strongly developed to hold out such a prospect. 
But in the broadest sense the whole Balkan region may 
be treated as one market, and also it may be viewed as 
a single field for the investment of foreign capital. 

The tendency in the past has been to view the trade 
relations of the Balkans as essentially European. Geog- 
raphy supports this view. But geography is not con- 
clusive. American farm machinery always has had a 
good market in the agricultural districts, and other 
manufactured commodities have not been without 



172 AMEKICAN FOREIGN TRADE 

markets. The trade that was obtained was despite the 
difficulties of transportation, and the settled practice 
of buying through London and Hamburg. American 
ships plying directly between the Atlantic and gulf 
ports and the Black Sea ports overcome this handicap. 
They also furnish a direct market for the relatively few 
commodities that the Balkans have for export to the 
United States, and insure the increase in trade which 
always follows direct transportation facilities. 

Greater Greece offers a larger market for the products 
of the United States and also seeks a larger market for 
her own products. Greece finds an excellent demand 
in the United States for currants, olives, tobacco, and 
other agricultural products, as well as for fine marble. 
She is a customer of the United States for coal, raw 
cotton, petroleum, edible oils, and miscellaneous manu- 
factured articles. She is also a borrower, and one means 
of amortizing her loans is by the sale of her products 
abroad. She is moreover an investment field, and the 
capital invested in industrial enterprises seeks material 
in the United States. 

Asiatic Turkey is both Black Sea and Mediterranean 
trade territory. One portion of this territory has a 
special relation. That is Asia Minor. The so-called 
spheres of influence in Syria had a distinct significance 
in international commerce before the war. The signifi- 
cance is much less now, because the European countries 
which arranged the spheres among themselves have not 
the capital to carry on the railroad building and other 
enterprises that were the basis of the Turkish conces- 
sions. The United States has the capital. It also has 
the steamship facilities for the direct traffic to Beirut, 
Smyrna, Adalia, and Alexandretta, which are the gate- 



RUSSIA AND THE NEAR EAST 173 

ways to the interior. These are the signs, or the map- 
pointers, which indicate a greater share for the United 
States in the commerce of this region. 

In its widest application, the future trade influence 
of the United States in the near East is dependent on 
loans and investments. Loans by the Government of 
the United States to Serbia, Greece, and Rumania in 
their totality have not been large, but they have given 
the country a definite stake in the orderly political and 
industrial development of the whole near East. The 
question of the future is how far this situation will 
induce private capital to venture into large construc- 
tive enterprises. 

During the old regime of Turkey one such experiment 
was tried. It was at the period when everything de- 
pended on Turkish concessions, and the sultan was not 
chary of granting concessions. The troubles which the 
concessionaries might have with those who had obtained 
previous concessions did not concern him. In 1911 an 
American syndicate, with a capital of fifty million dol- 
lars, was organized. It had extensive plans of railway 
construction, public works, and kindred developments. 
Considerable resources were opened to it for exploita- 
tion. For a time the project seemed likely to succeed, 
and a new market to be created for material from the 
United States. Then the blow fell. 

The hand of Germany was stretched forth, and the 
American syndicate was blocked at every turn. The 
Bagdad Railway was not in reality endangered by the 
American plans, but Germany would have no competi- 
tion from across the Atlantic. Diplomatic representa- 
tion and protests made to the German Government were 
met with cynical denials of Germany's responsibility. 



174 america:n^ foreign trade 

Berlin had no knowledge that its famous ambassador 
at Constantinople was interfering. Certainly the Ger- 
man Government had not instructed him to interfere. 
And so on. Compared with his success in blocking Brit- 
ish enterprises in Asiatic Turkey, his killing off Ameri- 
can enterprise was child's play ; but his work was effec- 
tive. Financial disaster overtook the American capi- 
talists, and ultimately they took their loss and withdrew. 

This experience would not be repeated under the new 
conditions, but the knowledge of it still lingers, and is 
likely to make American capitalists hesitant. Yet there 
is no more inviting field for investments abroad than in 
the near East, and there is none which may be made 
with greater benefit to the peoples of those countries. 
Though it may be slow, American capital will yet find 
its way to Constantinople, and the trade of the United 
States with the near East will be visibly increased. De- 
mand will be enhanced for industrial as well as for 
agricultural machinery, oil-motors and tractors, hard- 
ware, machine tools, electrical supplies, engineering 
equipment, railway material, automobiles, office appli- 
ances, flour, cotton-seed oil, cotton goods, and miscel- 
laneous merchandise. The general trade will grow 
with the elimination of London and Hamburg as middle- 
men, and the establishing of Constantinople as an Amer- 
ican distributing headquarters, with direct steamship 
service to and from New York. 

The Russia of the past covered more than a seventh 
of the land surface of the whole world. Its population 
exceeded 170,000,000 inhabitants. Its resources were as 
varied as were the climate and soil of a territory so im- 
mense. The developed resources were chiefly agricul- 
tural, but ancillary to these were the fisheries, the fur- 



RUSSIA AND THE NEAR EAST 175 

bearing animals, and the forests. There were also the 
mineral deposits — iron, coal, manganese, oil, and the 
precious metals. 

In 1914 approximately 194,000,000 acres were given 
over to the production of bread cereals, principally 
wheat and rye; more than 43,500,000 acres to oats; and 
8,000,000 to potatoes. In 1915 the entire area of these 
agricultural products was 323,340,000 acres. In addi- 
tion there were 4,500,000 acres of maize and 28,500,000 
acres of barley. In quantitative terms the production 
of wheat was 24,800,000 short tons; of rye, 25,475,000; 
of oats, 14,359,000; and of potatoes, 24,838,000. The 
mineral wealth comprised the oil-fields, second only to 
the United States in production; the manganese of the 
Caucasus region, exceeding the combined output of In- 
dia and Brazil; and the iron and coal of the basin of 
the Don.i 

A glimpse of the whole as an economic unit by far 
the greatest in the world is thus given in order to judge 
the prospects of what remains after huge regions are 
subtracted from the whole. In passing it may be said 
that old Russia really comprised a score of economic 
units. Out of these, treated as a block, was evolving 
the economic and commercial policy of the Russia that 
during the first two years of the war was the savior 
of England and France. This policy in its inception 
was the work of a single brain, that of Count Sergius 
Witte. 

The national economic policy of protection was initi- 
ated under autocratic government. Witte and the pro- 

1 For an instructive and comprehensive survey of the resources, trade, 
and industry of the former empire, see " Russia, Special Consular Re- 
ports No. 61, Department of Commerce," Washington, 1913. See also 
" The Russian Year-Book," London, 1915. 



176 AjMEKICAN foreign TRADE 

gressive Russian statesmen of Ms school saw in it the 
genesis of a new national life. The foundation was the 
development of home industries by high duties on manu- 
factured articles and raw material which the country 
itself was able to produce. The plan was so directed, 
for example, that foreign manufacturers of agricultural 
implements and electrical equipment found it advisable 
to establish branch plants, or what were nominally 
branch plants, in Russia. Essentially, they were domes- 
tic industries. The textile mills of Warsaw and Mos- 
cow, the chemical factories of Lodz, were evolved as 
protected industries. The commercial policy was not 
the direct corollary of the economic policy, since foreign 
trade was not its leading motive. Trade treaties were 
negotiated under the dual tariff system similar to that 
of Germany, with the unconditional construction of the 
favored-nation clause. 

Russia prospered under its economic system. In 1913 
the total foreign trade was in round numbers a billion 
and a half dollars. The imports were in excess of |707,- 
000,000, while the exports approximated |783,000,000. 
By far the larger part of this commerce was that of 
Russia in Europe. This ranged as to exports from 
ninety to ninety-one per cent., and as to imports from 
eighty-three to eighty-five per cent. Finland, which, 
notwithstanding partial autonomy, was counted as a 
part of the empire, was credited with about four per 
cent, of both exports and imports. Asiatic Russia 
provided twelve per cent, of the importations and six 
per cent of the export ations. 

Germany had the lion's share of the Russian trade. 
The year before hostilities broke out the imports from 
the German Empire amounted to 47.5 per cent, of the 



EUSSIA AND THE NEAR EAST 177 

total, or a fraction under |336,000,000. Some of these 
imports were not of Teutonic origin, but Hamburg had 
the middleman's profit out of them. On her part, Ger- 
many imported commodities from Russia, principally 
agricultural products which did not compete with her 
own, to the amount of |233,000,000, or approximately 
thirty per cent, of the total Russian exports. Propin- 
quity accounted for part of this commerce, which was 
border trade. This circumstance usually is overlooked 
in discussing Germany's commercial overlordship of 
Russia. 

Statistics furnish no trustworthy measure of the ac- 
tual trade between the United States and the Russian 
Empire in the period before the war. This is because 
of the large quantities of merchandise which were tran- 
shipped chiefly through Germany, though some of the 
transhipments were made at Mediterranean ports. 
American consular investigations provided convincing 
evidence that the statistics were unreliable by demon- 
strating that in a single year, when the figures showed 
importations of cotton valued at |10,000,000, the actual 
importations exceeded $50,000,000. In addition to raw 
cotton, Russia imported from the United States agri- 
cultural implements for primary use and semi-finished 
parts for the factories that were established, railway 
equipment, and much miscellaneous machinery. The 
United States took from Russia raw wool, hemp, flax, 
hides and skins, fuel oil, licorice-root, and manganese 
ore. 

The United States was able to maintain its trade with 
Russia under the absolutist government during a situ- 
ation which was fraught with grave possibilities of 
interruption. The diplomacy of President Taft's ad- 



178 america:^^ foreign trade 

ministration, by forestalling a congressional resolution, 
avoided international offense when the treaty between 
Russia and the United States was abrogated by the 
action of the Executive because of Russia's discrimina- 
tion against the Jews. The abrogation of this treaty, 
while in response to popular sentiment, left the United 
States without grounds for asking a continuance of 
the conventional tariff of Russia, which placed it on 
the same footing with other nations. 

Through the diplomacy exerted by Secretary Knox, 
Russia continued this treatment under a device of her 
own, although there was a strong demand among the 
bureaucratic classes for retaliation by discriminating 
against American products. When the czar's govern- 
ment was overthrown, the American Ambassador was 
instructed to negotiate a commercial treaty with the 
provisional government that took its place, and later 
the negotiations might have been carried on with the 
Bolsheviki succession had not the nature of that move- 
ment made negotiations impossible. In consequence, 
there is no American trade treaty with Russia which 
would be effective with any of the fragments of the czar's 
empire. 

Future trade relations of some kind must be estab- 
lished, but whether with a central Russia or with several 
separated units only time can determine. This is as 
true of other countries as of the United States. Some 
of the principal subtractions from the Russia that was 
are undoubtedly permanent. Poland comprises one of 
the separate economic units. Russian Poland formerly 
sent flax and other agricultural products to the United 
States. The flax is still needed. The cotton-mills of 
Warsaw were largely dependent on American raw cot- 



RUSSIA AND THE NEAR EAST 179 

ton. They have the assurance of that product in the 
future. The loss of Poland is to Russia the loss of 
the principal industrial unit. Only Moscow rivaled 
Warsaw as a manufacturing center. 

Other elements, territorially speaking, are separable, 
and separated themselves; but there is the prospect that 
they may some day become parts of a federalized Russia. 
The Ukraine is by far the most important of these dis- 
tricts, although the whole Black Sea region might be 
included. The black soil of the Ukraine furnished the 
bulk of the wheat that was raised for export, and wheat 
shipments made Odessa a seaport rivaling Buenos Aires. 

The basin of the Don, with its extensive coal deposits 
and iron ore, gives the district adjoining the Ukraine 
an industrial potency that insures the development of 
an iron and steel industry of considerable proportions. 
The metal industry was on a solid foundation when the 
Great War came. Russia had even shipped steel rails 
to India, but it is still a question of the future as to 
what political unit will control this economic unit. 
The district, geographically, does not require to be 
separated from Russia proper. Yet there is the Black 
Sea outlet, with the separatist status of the Ukraine to 
offset this geographical relation. 

The Caucasus, with its manganese deposits, is the 
richest mineral region yet exploited in Russian terri- 
tory. It may adhere to the old Russia, or it 
may disregard the mountain barrier and unite with 
Transcaucasia. This presupposes that Georgia and 
Russia-Armenia form a single political government. 
The economic resources of the Transcaucasian region 
are more a part of Armenia than of Georgia. They 
are really the Caspian region, for Baku is the great 



180 AMERICAN FOREIGN TRADE 

oil-producing district. It was here that Marco Polo ob- 
served the fountain of oil which discharged so great a 
quantity as to furnish loading for many camels, and 
which was also good for burning, so that people came 
from distant parts to procure it for their lamps. Five 
and a half centuries have not lessened to the people of 
that region the value of the oil observed by the Venetian 
traveler, but its uses have extended far beyond the neigh- 
boring country, and it has become a world commodity. 

Siberia, both geographically and politically, may be 
viewed as one of the prospective subtractions from Rus- 
sia. Economically, it is not so easy to delimitate the 
frontiers of European Russia and Asiatic Russia, not- 
withstanding the existence of the Ural Mountains. The 
dairy products of western Siberia find their market in 
Europe. When the iron- and coal-mines are developed, 
they, too, may be looked upon as European. The gold- 
mines are too widely scattered to be assigned to either 
section to the exclusion of the other. But while the 
dividing-line may not be exactly determined, Siberia 
as a geographical and political entity looks toward the 
Pacific. Omsk may one day become the capital of a 
Pacific nation wholly separated from European Russia. 
Vladivostok already is linked with San Francisco and 
Seattle. 

The field is too speculative for satisfactory efforts to 
determine what will happen to the separated Russian 
units. Yet whether there be a federalized Russia or a 
series of unfederated states, there will still be the im- 
mense territory that was once the Russian Empire, with 
vast resources to develop and with an immeasurable 
foreign trade in prospect. Some of the units may con- 
tinue to get along under the Soviets, and modified Bol- 



RUSSIA AND THE NEAR EAST 181 

shevikism may prevail. Others may reject the scheme 
entirely, build up a social organization on the old basis, 
and secure recognition as nations. But whether in- 
dustrial socialism obtains in some parts, or whether it 
collapses entirely, the economic conditions will not be 
changed. 

Questions will arise whether certain of the regions 
which are erected into sovereignties or semi-sovereignties 
will continue as mere sellers of farm products and buy- 
ers of manufactured commodities, or whether they will 
work up their raw materials into semi-manufactured 
products that will bring higher prices than the primary 
materials. It is a question whether a portion of the 
grain of the Ukraine will be made into flour for export, 
or whether the whole crop will be exported as wheat. 
The problem will present itself whether to utilize a 
larger proportion of the iron ore and manganese in 
the development of iron and steel industries with the 
coal available, or whether the raw minerals shall be 
exported without reference to their value in domestic 
industry. The question will arise, too, whether it is 
better to supply other countries with manufactured 
lumber or with rough timber, and whether a larger pro- 
portion of hides and skins be employed in leather and 
kindred industries. In some of the agricultural regions 
the feasibility of feeding a larger quantity of grain to 
the native cattle and raising beef for export will have 
to be tested. 

Whatever policies may be determined by the separated 
or the reunited units, there are still the immense natural 
resources that will have to be developed in the natural 
progress of civilization. Some of the factors in deter- 
mining these questions cannot be settled entirely from 



182 AMERICAN FOREIGN TRADE 

within. Chief among these is that of foreign capital. 
Much of the big foreign debt which Russia incurred 
was dissipated by the corrupt bureaucracy. Neverthe- 
less, the Transsiberian Railway was built, other rail- 
ways were constructed, and some of the loans negotiated 
under Witte were utilized in very solid forms of in- 
dustrial development. The threatened repudiation of 
these debts by the Bolsheviki is a passing incident. In 
the end, Russia, or the subtracted and the remaining 
parts of Russia, will pay. 

This will be the invitation for foreign capital again 
to enter Russia. When this invitation comes in this 
form, the status of Russia in world trade will again 
become definite. The years may be many before this 
occurs, and they may be few ; but the outcome is certain. 
Economic reconstruction, which must supplement agri- 
cultural production, cannot come solely from within. 
Russia must adjust her system of production and dis- 
tribution to the rest of the world, whatever political 
vagaries she may show. 



CHAPTER XIII 

ECONOMIC SOUTH AMERICA 

The Southern Continent a world market — Export taxes a Spanish 
colonial inheritance — Limited resources for manufactures — Agricul- 
tural and mineral products the source of purchasing power — Brazil's 
rubber and coffee — Iron ore and manganese — Decentralized fiscal pol- 
icy — Argentina's grain and live-stock — Lack of minerals — Uruguay 
and Paraguay — Chile's copper and nitrates — Protective tariff tend- 
encies — Peru's varied products — Protective and export duties — Bo- 
livia and Ecuador — The Caribbean region. 

SOUTH America is the most inviting commercial 
field that the world has to offer. It is the only 
great region which actually may be regarded 
as neutral trade territory under the conditions 
that govern the new era. As the most promising 
market in all the world, inevitably it becomes 
the field of strenuous competition. Before it can 
be understood as a market, it must be compre- 
hended as an economic block, and with knowledge of the 
economic policies of the several countries that constitute 
the block. 

Description of the different regions of the Southern 
Continent and their productive resources shows little de- 
viation from the economic status of the sixteenth century 
to that of the twentieth century. The colonial era was 
the record of the trade monopolies of Spain and Portu- 
gal. These monopolies were the reflex of the age; they 
were common to all the European countries which had 

183 



184 AMERICAN FOREIGN TRADE 

overseas possessions. The buccaneers and the pirates, 
who were tolerated and protected by their home govern- 
ments, were the effective means of modifying the trade 
monopolies. 

The economic history of Spain in South America re- 
volved around the West Coast and the Caribbean region. 
On the Atlantic coast, Portugal, with her Brazilian pos- 
sessions, was the colonial power. The region tributary 
to the Plate, with its agricultural wealth, was little 
valued. It was administered by the Spanish viceroys 
from their seat of authority in Peru. 

The economic policy of Spain, with its basis rooted 
in commercial monopoly, looked only to the exploitation 
of the precious metals. When Pizarro, with his hardy 
horde of greedy adventurers, swept through the Inca 
empire of Peru, agriculture was the prized art of the 
natives, and gold was the earth's product which offered 
no temptation. Under the Spaniards, mining became 
the prime pursuit, if not the primal necessity. It was 
the same in Brazil. After the Paulist Fathers discov- 
ered gold in the river-beds agriculture was abandoned by 
the Portuguese colonists and by the Government. 

When the Spanish colonies achieved their indepen- 
dence in the opening years of the nineteenth century, 
and later when Brazil became an independent monarchy, 
trade was liberalized, especially as regarded shipping; 
but it was inevitable that there should be some inherit- 
ance of the Spanish and the Portuguese policies. The 
tax on exports was one of these inheritances. Benjamin 
Franklin held that it was defiance of all sound principles 
of economy for a nation to tax exports going from its 
own shores, but the experience of the Southern countries 
has not confirmed his contention. The policy has not 



ECONOMIC SOUTH AMERICA 185 

lessened the market abroad for their products. It is 
simply an element in economic South America consid- 
ered apart from the productive element. It does not 
lessen the value of the Southern Continent as a world 
market. 

Nature has not endowed the Southern Continent with 
the variety and propinquity of products which would 
enable it to become an extensive manufacturing region. 
The bulk of its resources are agricultural and mineral 
wealth very unevenly distributed. The tropical agri- 
cultural products, particularly coffee, cacao, fruits, and 
rubber, furnish other parts of the world with raw ma- 
terials for the consumption of human beings and of in- 
dustries. The cereals and beef, the wool and mutton, 
produced in the temperate regions are a certain, though 
limited, source of supply of food and clothing. The 
nitrates of soda, despite scientific advance in extracting 
this rich fertilizing element from the air by artificial 
means, will continue to nourish the world's farming. 
Silver and gold will serve for use in the arts and in 
adding to the specie needed for commerce, but none of 
these products in itself provides the basis for manu- 
factures. 

Where iron ore deposits exist in huge quantities, as 
in Brazil, coal is lacking, so that the basic iron and 
steel industries are not practicable. The copper and 
tin of the Andes regions are valuable, if not indispens- 
able, for the industries of other continents, but they 
are not so situated as to develop the industries of the 
Southern Continent. The combination of resources 
which provide both tropical and temperate foodstuffs 
for distant populations and raw materials for industry 
is what assures South America vast purchasing power. 



186 AMERICAN FOREIGN TRADE 

The lack of other raw materials of industry, and the 
geographical obstacles to assembling such as exist, re- 
quire that the major part of this purchasing power shall 
be expended overseas. 

South America, therefore, is to be considered as an 
economic block which responds in some measure, al- 
though with limitations, to the doctrine of the classical 
political economists that nations possessing abundant 
raw materials should be content with the exchange of 
their products for manufactured commodities. This is 
the situation which causes the Southern Continent to be 
treated as a unit in its relation to world trade, not- 
withstanding that the various republics acting in their 
own spheres have adopted national fiscal systems that 
look to the development of their domestic industries. 

The population of the South American countries does 
not exceed fifty million inhabitants, and much of this 
is an aboriginal population, with small capacity for 
consumption. Yet the purchasing power, as is shown 
by an examination of the foreign trade of the leading 
countries, is very high per person. In the totality it 
is treble that of the Chinese Empire, with upward of 
350,000,000 inhabitants. Moreover, there is the cer- 
tainty of increase in the number of consumers through 
immigration. This increase will come much more 
slowly than the rhetorical bombast of Pan-American 
orators would indicate. Nevertheless, there are vast 
regions capable of colonization, and it is inevitable that 
these regions gradually be filled by a producing and 
consuming population. The total growth in a decade, 
or even in a generation, through immigration may not 
be marked, yet the movement is a steady one. This is 



ECONOMIC SOUTH AMERICA 187 

why commercial nations, in turning to South America as 
a market, look beyond the immediate prospect. 

In order fully to understand South America as an 
economic block, it is necessary to pass in rapid review 
the natural resources of the different regions and the 
fiscal policies of the several countries. Physical and 
political geography come before commercial geography. 
In a broad way, as relates to commerce, the continent 
may be divided into three regions. These are the east 
coast, extending from the Amazon to the Strait of Ma- 
gellan; the west coast, stretching from Panama to the 
straits; and the Caribbean Coast, extending from Pan- 
ama to the Guianas. 

The east-coast group is by far the most important 
considered with reference to area, population, and to 
variety and extent of natural resources. It includes 
Brazil, Uruguay, the Argentine Republic, and the in- 
terior country of Paraguay, which has fluvial and rail 
transportation to seaboard. 

The vastness of Brazil is a fascinating theme, but in 
describing the territorial extent, it is enough to say 
that it comprises a larger area than is comprised in the 
continental area of the United States. The two prin- 
cipal sources of export wealth are rubber and coffee. 
The natural rubber of the Amazon is unsurpassed. The 
Brazilian product constitutes one-fourth of the world's 
total supply. The wide fluctuations in price make it 
impracticable to give a definite estimate of the real value 
of rubber to Brazil. In 1906 crude rubber brought |3.00 
a pound; in 1911 sixty-six cents a pound. It is recog- 
nized that in the future the Brazilian product must 
compete with the cultivated rubber of the Malay Straits, 



188 AMERICAN FOREIGN TRADE 

which can be produced at a price much lower than the 
rubber of the Amazon can be gathered and marketed. 
Yet the Amazon rubber has certain qualities that make 
it distinct from the plantation rubber. There is no 
reason to assume that as a national asset it is seriously 
threatened with extinction by the competition of the 
cultivated product of the Straits, though the percentage 
of comparative production may continue to fall, and pro- 
gressive reduction in the export tax may become im- 
perative. 

The Brazilian berry is the world-dominating factor 
in coffee production. A study of the statistics shows 
how true this is. Almost any year that may be taken 
will show the Brazilian crop to range at from seventy 
per cent, upward of the world crop. The capacity of 
Brazilian territory for coffee-growing is almost limit- 
less. The practical question always has been and al- 
ways will be how to avoid over-production, so as to 
assure profitable prices. There can be no doubt as to 
Brazil's primacy in the coffee market of the world, 
and the purchasing power which it gives her. 

Cocao, or the chocolate bean, is another source of 
tropical agricultural wealth to Brazil. It is compara- 
tively small when placed beside coffee, yet it is a com- 
fortable asset. The world's production of cacao never 
gets much beyond the demand, and the fluctuations in 
price are not wide. 

Sugar and cotton are produced in considerable quan- 
tities, but both these products are utilized chiefly for 
home consumption, and are the basis of domestic indus- 
tries. The development of the live-stock industry in the 
temperate regions of the South promises a definite ad- 
dition to the quantity of hides available for export. It 



ECONOMIC SOUTH AMERICA 189 

also may mean meat products for oversea as well as 
for home consumption. 

BraziFs principal mineral resources, aside from some 
gold and the diamond deposits, are iron ore and man- 
ganese. The hematite deposits in the State of Minas 
Geraes are conjectured to contain 12,000,000,000 tons. 
The beds lie from four hundred to five hundred miles 
back from the coast. Technical experts who have 
studied them have no doubt of their commercial value. 
They are one of the great ore reserves of the world, 
but they lack means of exploitation as the foundation of 
a national iron and steel industry because of the want 
of coal. A few widely scattered carbon deposits, suit- 
able for local domestic and industrial purposes, have 
been tested, but there is no coal available in quantities 
which could be assembled for blast-furnaces. 

The Brazilian Government has studied various plans 
for bringing the iron ore to the coast and trans- 
porting coal overseas, so as to insure the utilization of 
the ore in domestic industries; but the project hardly 
can be said to give promise of developing a national 
iron and steel industry in the near future. In conse- 
quence, the manganese ores, which are extensive and 
easily transported to seaboard, will continue to be 
shipped abroad, and add to Brazil's buying power. 

The natural resources having been studied, the fiscal 
and economic policy of Brazil can be comprehended 
after an understanding is reached of the political system. 
The several States are held together almost as loosely 
as were the North American colonies under the Confed- 
eration after the Revolution. There is a centralized 
government, and in some respects the federation is a 
strong one in whatever concerns the national life; but 



190 AMERICAN FOREIGN TRADE 

at the same time the different States revolve in economic 
and fiscal spheres of their own. The central Govern- 
ment collects the customs taxes and has various sources 
of internal revenue. 

Export taxes are the fruitful sources of income, and 
these are laid by the States, except on the rubber which 
is exported from the territory of Acre. Coffee, which 
is the great national asset, yields nothing to the central 
Government. The export tax is collected and applied 
to their own uses by the coffee-producing States of San 
Paulo and Rio de Janeiro. An export tax on cacao is 
levied by Bahia, where the bulk of it is produced. Other 
States impose export taxes on their products. Some 
of these levies are so extreme as to defeat their own 
purpose. An American scientist once noted that rose- 
wood and mahogany logs were used for firewood on the 
locomotives of the northern railways because the export 
duty was so high that it was not profitable to ship them 
abroad. 

The States encourage local industries by bounties and 
subsidies in various forms, but the encouragement of 
domestic industries in their entirety is recognized as 
the function of the Federal Government. Brazil has 
a national policy in this respect, and it is the policy of 
high protection. The methodical German tariff -makers, 
who had occasion to study the Brazilian schedules in 
relation to their conventional tariff, declared that analy- 
sis showed the Brazilian scale of duties to be the highest 
of any country in the world. Many of the duties are 
so absurdly high as to defeat their own purpose, but 
some of them, such as the impost on cotton and woolen 
goods, unquestionably have stimulated the native in- 
dustries. 



ECONOMIC SOUTH AMERICA 191 

The Brazilian tariff in practice is subjected to con- 
siderable modification through the wide latitude allowed 
in its administration, and through the authority given 
the executive in the annual budget law of the Congress 
to make further modifications. ^tTevertheless, in the 
fiscal sense, Brazil must be viewed in its relation to 
world trade as a protective tariff country which also 
lays heavy export taxes on virtually all the natural 
products that are shipped abroad. Consumption taxes 
are levied on tobacco, beverages, salt, boots and shoes 
and other articles. 

The Argentine Republic, with an area of 1,250,000 
square miles, is to be considered internationally as one 
of the world's grainfields and live-stock pastures. 
Wheat is the permanent source of purchasing power, 
supplemented by maize, linseed, and other crops, and 
by beef, mutton, and wool. Drouth and locusts in some 
years limit the income derived from the grain crops, 
but an average may be struck for a given period with 
some degree of certainty. 

The beef and mutton supply was one of the sources 
of Argentina's very rapid development as a commercial 
nation. It was for a while the principal factor in the 
dazzling growth of the foreign commerce. In the last 
year of the last century 9,000 tons of frozen beef, valued 
at less than $1,000,000, were exported. Ten years later 
there were 181,000 tons, valued at |18,000,000. Other 
live-stock products showed proportional increases. 

The wool clip has been a continuously advancing 
source of national wealth. Notwithstanding the con- 
tinued extension of grain-growing and some advance 
in mixed farming, which encroach on the sheep-pasture 
areas, there is no reason to expect that for years to 



192 AMERICAN FOREIGN TRADE 

come the wool crop will be a diminisliing factor in the 
national wealth. 

It is these agricultural exports which give the Argen- 
tine Republic so large a purchasing power per capita — 
in some years as much as fifty dollars — and which 
enable her, in the international turnover, to have so 
large a balance to meet the payment on government loans 
incurred for public improvements, and to remit the divi- 
dends on railways and other securities in which foreign 
capital has been invested. 

While Argentina has vast agricultural wealth, nature 
has been niggardly in her gift of the mineral resources 
that are necessary to the development of national in- 
dustries. There is no iron ore within the extensive 
limits of the country. No coal has yet been discovered 
except some isolated deposits along the Andean wall. 
Copper deposits in the foot-hills of the Andes and in 
the extension of the Atacama mineral region of Chile 
have little economic significance. Petroleum deposits, 
discovered within recent years in Patagonia, are of un- 
doubted value as sources of fuel supply. The produc- 
tion has reached a million barrels annually. The gov- 
ernment measures to conserve and exploit them assure 
that they will not be wasted, but at the most all that 
they can be counted on to do is to serve as a means of re- 
ducing the annual fuel bill previously paid out for im- 
ported coal. The commercial possibilities of the 
Salta-Jujuy district in the north and of the Mendoza- 
Nequen field along the eastern slope of the Andes have 
not yet been proved. 

It will be seen from this brief survey that Argentina 
is near to meeting the ideal conditions imagined by the 
political economists of the classical school, that of ship- 



ECONOMIC SOUTH AMERICA 193 

ping natural products abroad and taking manufactured 
commodities in exchange without seeking to develop do- 
mestic industries. Yet, where the opportunity offers, 
the protective policy is followed. The sugar-growing in- 
dustry in the warm region of the North has been fostered 
by protective duties. Agitation for encouraging leather 
and woolen manufactures also has received support. 
Knit goods has become a promising industry. 

In her fiscal system as a whole, however, the Argentine 
Republic recognizes the economic situation created by 
the nature of her resources. The mass of the revenues 
collected are from customs duties on articles of wide- 
spread consumption. Export duties were imposed for 
a period after the financial crisis of 1890 and then aban- 
doned. The Congress of 1917 authorized the executive 
to reimpose them on quebracho, or tanning extract, 
frozen meats, cattle, wool, hides, linseed, and some other 
commodities, and this was done. 

Uruguay's chief source of national wealth in relation 
to purchasing power abroad is in live-stock products. 
The cereals are not grown in excess of the domestic 
needs. Hides and wool, mutton, beef, and beef extract 
are the principal exports. Economically, they may be 
said to supplement the similar exports of Argentina. 
Uruguay has a distinctive national policy, which looks 
mainly to the stimulating of the agricultural industries. 
The greater part of the revenues is collected from import 
duties. 

Paraguay, a thousand miles up the Plate, in the sense 
of world commerce is chiefly to be considered with refer- 
ence to live-stock. Hides are the principal commodity 
exported. They are also the principal source of revenue, 
since an export duty is levied on them. Paraguay has 



194 AMERICAN FOREIGN TRADE 

great possibilities for the live-stock industry and is one 
of the South American reserves for future population 
to be obtained through colonization rather than by 
natural increase. 

The west-coast group of countries, in the sense of 
mineral production, are the treasure bed of the Andes, 
but account also must be had of their agricultural 
wealth. Chile, in foreign commerce, takes the lead, due 
partly to her possession of the nitrate of soda or salt- 
peter beds. These whitish-yellow desert areas, them- 
selves incapable of nourishing a blade of grass, when 
their surface is broken and the lower strata treated by 
a simple evaporating process, furnish exports, in quan- 
tity approximating 3,000,000 tons annually. 

It was the belief of scientists until recently that 
Chile's great source of natural riches gradually was 
drawing to a close through the exhaustion of the nitrate- 
beds, but fresh discoveries demonstrated that new areas 
were available, although the quality of the saltpeter 
was not so high. Enough is known regarding artificial 
nitrates to show that, while they may be manufactured 
successfully for explosives, the process is a costly one, 
and this is one reason why they are not likely to take 
the place of natural nitrates in fertilizing the world's 
agriculture. Governments do not have to count the 
cost of artificial nitrates in war-times, but individuals 
must include it in their reckoning of production under 
peace conditions. It is a reasonable conclusion that 
Chile's nitrates are a permanent source of income to 
her. 

Chile has copper in fabulous quantities, and she has 
enormous beds of low-grade iron ore. The country also 
has coal, but it is mostly lignite, and there is not enough 



ECONOMIC SOUTH AMEKICA 195 

of it to meet the needs for domestic and local industrial 
purposes, while its assemblage with iron ore and lime- 
stone for industrial purposes has not proved strikingly 
successful. Hence it has followed that the ore-beds, 
under control and operation by American capitalists, 
are utilized for steel industries in the United States 
rather than for a Chilean iron and steel industry. They 
are more valuable at Bethlehem than in. Ciiile. 

The central valley of Chile provides some surplus 
agricultural products for export, but the bleak Pat- 
agonian mainland and the desolate islands of the Strait 
of Magellan in the sheep pasturage they afford are of 
more importance as sources of export, since they con- 
tribute to the world's wool supply. 

Chile's economic policy is strongly protective where 
anything to protect can be found. Textile industries 
instituted during the war are an example. The income 
from customs duties is not inconsiderable, but the larger 
portion of the revenues is derived from the export tax 
on the nitrates. Chile has resisted the temptation to 
lay an export duty on copper, possibly realizing that 
since her copper is not, like nitrates, a natural monopoly 
and must compete with the copper of the world, no 
burden should be placed on its production. 

Peru has an unusual share of mineral wealth, due to 
the wide extent of the Andes that lies within her borders. 
Aside from the precious metals, her principal mineral 
product is copper. There are extensive deposits of bi- 
tuminous coal, and in the Cerro de Pasco region these 
are of some local utility; but the mass of the coal 
deposits are unavailable through the lack of trans- 
portation facilities. These facilities in time will be 
provided. The expense is too great for immediate reali- 



196 AMERICAN FOREIGN TRADE 

zation. The mining companies have utilized the water 
power of the Andes, and hydro-electric works on a large 
scale have been constructed for smelting the copper. 
Peru has petroleum deposits in the North, the output 
of which is used on the railways, and is exported to the 
amount of 2,500,000 barrels and upward annually. It 
is an appreciable factor in purchasing power. Peru 
also is to be considered in connection with valuable 
agricultural products, since alpaca wool, sugar, and the 
fine cotton of the North are exported in large quantities, 
while considerable rubber goes out through the Amazon. 

Peru's economic policy is one of protection where 
there is the possibility of developing a native industry, 
as in the case of cotton-mills. High import duties are 
levied on cotton goods, and the domestic industry is a 
flourishing one. 

In the fiscal system both import and export taxes are 
levied. The export taxes include mineral products, 
rubber, wool, sugar, cotton, and other agricultural com- 
modities. For many years rubber was the chief source 
of the export duties, but the list was widely extended 
during the war period. This radical change in the na- 
tional policy was effected by a law of March 20, 1918. 
Its distinguishing feature was a combination of specific 
and ad valorem duties. With a few exceptions no export 
duty is imposed until the market quotations of the vari- 
ous articles reach the level specified in the law itself. 
Beginning at that point, the specific rates provided for 
are applied with an addition of ten per cent, of the 
excess of the actual market quotations above the mini- 
mum prices fixed in the law. The abnormal prices of 
most of the products included in the law foreshadowed 
its success while the war lasted. Whether the mineral 



ECONOMIC SOUTH AMERICA 197 

and agricultural products, none of which is a natural 
monopoly, can pay these duties and compete with similar 
products of other countries under peace conditions must 
be determined after trial. Theoretically, the provision 
under which the export duty is not imposed until the 
market quotations reach the level specified in the law 
itself would meet this situation, but in that event there 
would be no revenues. 

Bolivia, notwithstanding the lack of a seacoast, may 
be described as a west-coast country, although part of 
the rubber product of the vast river region finds its way 
out through the Amazon to the Atlantic. While some 
copper is produced, Bolivia is to be considered chiefly 
in connection with the production of tin. The country 
is next to the Malay Straits in this product. Bolivia 
depends both on import duties and export taxes for her 
national revenue. Tin, as the leading product, is the 
most dependable source, although the export tax on 
rubber affords some income. 

Ecuador has one preponderating source of national 
wealth. This is the cacao, or chocolate bean. The coun- 
try produces 75,000,000 pounds and upward of this com- 
modity yearly. Other agricultural resources include 
coffee, rubber, ivory nuts, or vegetable ivory, straw for 
Panama hats, and hides. There are few mineral 
products. Ecuador derives the larger part of the na- 
tional income from the export tax on cacao, but wherever 
a customs duty can be imposed in order to develop a 
local industry, this is done. 

The Caribbean group might be called the north-coast 
group, although it includes Colombia, which has a long 
frontage on the Pacific coast, as well as on the Atlantic. 
The principal products are coffee, cacao, and fruits, rub- 



198 AMERICAN FOREIG:tT TEADE 

ber from the interior districts, gold and silver, various 
hardwoods and dyes, and medicinal plants. 

The Caribbean countries, Colombia, Venezuela, and 
the Guianas, have substantially similar products. Co- 
lombia depends principally on the export of coffee and 
bananas, and on the gold and silver mining output for 
her purchasing power abroad. The platinum deposits 
have not been productive enough as yet to be considered 
an important source of natural wealth. There are enor- 
mous resources not yet exploited. One of these is oil. 
Its exploitation will be gradual, but the value of the 
deposits seems to be determined. Colombia imposes an 
export tax on coffee and other products. 

Venezuela's principal products for exports are cacao, 
coffee, and hides. The country has iron ore deposits 
and also coal, and has therefore definite manufacturing 
possibilities; but these are not fully enough tested to 
enter into present consideration. The Caribbean and 
the Orinoco oil-regions give promise of commercial de- 
velopment. Petroleum is one of the assets of the pres- 
ent day. The fiscal system includes both export and 
Import taxes. 

Economically, the Guianas are to be viewed as pro- 
ducers of sugar and a few other tropical articles, in- 
cluding rubber, along with some gold. Politically, and 
commercially, their overseas relation has to be recog- 
nized, especially that of Dutch Guiana and French 
Guiana. British Guiana has to be taken in connection 
with British imperial trade policy, and geographically 
as including the Island of Demerara, which is the seat 
of the sugar industry. 

This survey of South America as an economic block 
has shown only in outline the relation of tropical and 



ECONOMIC SOUTH AMERICA 199 

temperate agriculture. The generalization may be made 
that, while both are susceptible of development, the 
products of tropical agriculture are likely to be the 
leading source of exports, and therefore the principal 
element of purchasing power. Similarly, the exports 
of copper and nitrates are the chief factors of an in- 
dustrial character, with iron ore a growing factor. 

The imposition of export duties works satisfactorily 
to all the countries. The development of domestic in- 
dustries under protective duties may be accepted as a 
continuous policy, but one which will not change the 
volume of purchases abroad, because of the demand 
which will be created for machinery and installation. 
Generally, therefore. South America may be considered 
as a great productive region of certain raw materials 
for export, and as a consumer principally of manufac- 
tured products. In this light it is to be viewed as a 
market. 



CHAPTER XIV 

SOUTH AMERICA AS A MARKET FOR EUROPE 

Salient geographical aspects — Interchange among the several coun- 
tries — Ocean routes to the Old World — Panama Canal — Racial ties 
with Europe — Immigration from the Mediterranean countries — French 
intellectual influence a trade factor — Spain and Italy — Reasons for 
England's primacy — A century's normal growth — British investments 
— Germany's methods — Teutonic colony in Brazil unimportant — Mar- 
ket in other countries not lost — Tragedy of Belgium's commerce — 
Europe's prospects. 

South America as a market is to be viewed in three 
salient geographical aspects. These are the commercial 
intercourse of the several countries among themselves, 
the trade relations with Europe, and the trade relations 
with the United States. There is some trans-Pacific 
commerce, chiefly with Australia and Japan, and there 
is also trade with India. This trans-Pacific traffic is 
a growing commerce, but it is relatively a small factor in 
South America as a market. 

The commerce of the several republics among them- 
selves is partly that of frontier traffic and partly that 
which requires sea-borne transport. Since the tropical 
regions grow similar products, there is little interchange 
of these commodities among them. The same observa- 
tion applies to the production of minerals. Since few 
of the countries have the raw materials for extensive 
manufacturing, there is little internal commerce in 
manufactured commodities except in textiles. 

The frontier trade is principally the seasonal inter- 

200 



A MARKET FOR EUROPE 201 

change of live-stock and agricultural products. In illus- 
tration, there is a considerable movement of cattle, 
horses, goats, and sheep between Argentina and Chile. 

The larger commerce is principally that of foodstuffs 
between the tropical and the temperate regions. The 
Argentine Republic draws her coffee from Brazil. In 
return she sends a part of her wheat to the Brazilian 
flour-mills. Peru supplies sugar-cane to Chile, and when 
the Australian crop is short and the Chilean crop abun- 
dant, imports wheat from Chile for her flour-mills. 
Peru also ships her cotton fabrics across the frontiers 
to Bolivia and Chile. Brazil sends coffee through the 
Straits of Magellan to Chile, while Ecuador routes both 
cacao and coffee down the coast to Chile. The latter in 
return supplies these countries with some miscellaneous 
products and minor manufactures. 

The question of a South American Zollverein is some- 
times agitated. It is viewed in the larger aspect of 
continental commerce. Necessarily there is a political 
background to it. The project is not impracticable, but 
it is not one that is likely to have early realization. A 
more probable development is free trade in articles of 
native origin among countries grouped geographically 
together. This relation has been recognized in a number 
of treaties which have been negotiated, but have not be- 
come effective. It has existed between Peru and Bolivia 
and it has been sought between Chile and Bolivia. 
Should arrangements of this kind be consummated be- 
tween any group of countries, it w^ould be beneficial to 
the parties to it, but it would not impair their value as 
a market for the products of overseas countries.^ 

iFor an instructive survey of the nature of South American trade 
with all countries, see ** South America as an Export Field," by Otto 



202 AMEKICAN FOREIGN TRADE 

Geographical obstacles prevent extensive interchange 
of products between the east-coast and the Caribbean 
and west-coast regions. The Venezuelan ports are 
farther away from Buenos Aires than they are from New 
York. Guayaquil, the leading port of the west coast 
between Panama and Valparaiso, is more accessible to 
the markets of Europe and the United States than to 
those of Uruguay and Brazil. So is Callao, the gateway 
to Peruvian commerce. 

Relations with Europe, in so far as they affect trade, 
are to be considered from a twofold point of view. One 
is geographical; the other is racial. 

Respecting the geographical relation, the steamship 
lanes from Genoa, Marseilles, Barcelona, Lisbon, Bor- 
deaux, Havre, Liverpool, Southhampton, Plymouth, 
Hamburg, and Bremen to Rio de Janeiro, Santos, 
Buenos Aires, and other ports of the east coast are but 
little longer than those from New York, Boston, and 
Philadelphia. For example, from New York to Pernam- 
buco, the first Brazilian port of call, is 3,700 miles. 
From Liverpool it is 4,062 miles. This means less than 
400 miles difference to the east-coast ports, a negligible 
factor in ocean traffic. 

Though the Panama Canal is an extension of the At- 
lantic Coast line of the United States down the west 
coast of South America, it shortens the distance between 
European ports and Guayaquil, Callao, and Valparaiso 
in the same proportion. The opening of the canal, while 
it has benefited New York and Norfolk and New Orleans, 
also has enabled the European steamship lines to avoid 
the long voyage through the Straits of Magellan or 

Wilson, Special Agent of the Department of Commerce, Washington, 
1914. Republished in 1918. 



A MARKET FOR EUROPE 203 

around Cape Horn. Except for its propinquity to the 
Caribbean coast ports, the United States relatively has 
no marked advantage over Europe in transportation 
routes. 

Racial ties, the inheritance of language, laws, customs, 
and traditions, the bond of intellectual sympathy — all 
these must have attention when the respective relations 
of Europe and the United States to South America are 
considered. Latin America is a loose and misleading 
term, yet in describing South America it reflects the 
knowledge that the Southern Continent as a whole, and 
the countries separately, were colonized from the south- 
western corner of Europe, and especially from the Iber- 
ian peninsula. It also reflects the fact that the currents 
of modern immigration, although some of the streams 
have mid-European sources, are from the Mediterra- 
nean countries, Italy in particular. 

The native stock of all the countries of South America 
except Brazil is of Spanish origin. Brazil is Portu- 
guese, with a large African intermixture. Though the 
peoples of Spain and Portugal are widely dissimilar, 
there is some identity in so far as relates to their Latin 
characteristics. Spanish immigration into South Amer- 
ica has been continuous. Italian immigration is the de- 
velopment of the last half-century. It has mounted 
higher and higher. One third of the permanent popula- 
tion of San Paulo in Brazil is of Italian origin, and 
the other southern States of Brazil show increasing 
Italian elements. Such immigration as Uruguay 
profited by has been chiefly from Spain. The streams 
from Spain to the Argentine Republic have flowed 
steadily but they have been small compared with the 
Italian tide. 



204 AMERICAN FOREIGN TRADE 

The Argentine Republic has 8,000,000 inhabitants, and 
of this number 3,000,000 are of Italian birth or descent. 
One fourth the population of Buenos Aires, the greatest 
city in the south temperate zone of the world, is Italian. 
Argentina has an immigration policy based not only on 
the Mediterranean countries, but on the countries 
farther to the north as well. 

Patagonia, no longer a forbidding wilderness, but 
an habitable agricultural area capable of growing wheat 
and of mixed farming, as well as of raising sheep and 
pasturing cattle, affords homes for millions who are 
habituated to the temperate regions, while central and 
northern Argentina are also capable of sustaining the 
northern races without danger of a tropical sapping 
of the energies. The Government has encouraged colo- 
nies of Welshmen, of Swiss, of Russian Poles, of Boers, 
and of the Slavs of central Europe. These colonies 
are taking root, and in the course of another half-cen- 
tury may affect the character of the Argentine people. 
But with the past perceptibly Spanish colonization, and 
with the existing preponderant Italian immigration, the 
national type at present is distinctly Latin. 

With this historic inheritance, and with the tongues 
of Spain and Italy and Portugal so largely predominant, 
it may be understood how strongly the Latin habits of 
thought prevail in South America. It may also be com- 
prehended why from time to time there are intellectual 
movements for a revival of Hispano-Americanism. The 
broader Latin intellectual force, however, is that of 
France. 

There are comparatively few Frenchmen in South 
America, but the influence of France is more pronounced 
than that of Spain herself. In Brazil, where, notwith- 



A MAEKET FOR EUROPE 205 

standing the language, there is no vital Portuguese in- 
tellectual impress on the national character, French in- 
tellectualism is very pronounced. French thought has 
largely influenced the literature of Brazil, and has had 
a very direct influence on her political institutions. The 
teachings of August Oompte, the apostle of positivism, 
were one of the most potent factors in overthrowing the 
monarchy and setting up the republic, although little 
effort was made to establish it on positivist lines. 

It may consequently be understood that since the news- 
papers are published in Spanish, Italian, and Portu- 
guese, and since all the educated classes are familiar 
with French, international subjects are viewed through 
European glasses. This has a reflex influence on com- 
merce. Sometimes it has been employed to attempt 
movements for a Latin league in South America to com- 
bat a specter called " Yankee Imperialism." Occasion- 
ally, it has been made the basis of practical suggestions 
for increasing the trade of the Latin countries of Eu- 
rope with the South-American republics. It is an en- 
during element that must be reckoned with in future 
trade relations. 

In view of the racial and intellectual ties, the observer 
who examines the situation from the practical point of 
view may ask why it is that Spain and Portugal and 
Italy, and even France, have proportionately so little 
trade as compared with the non-Latin nations of Eu- 
rope, which means England and Germany. The answer 
is that both Spain and Italy have a good trade, based 
to some extent on racial sympathy, but neither of these 
countries has the domestic basis for a large overseas com- 
merce. They lack the raw materials to enable them to 
become manufacturing countries on a large scale, and 



206 AMERICAN FOREIGN TRADE 

South America as a market is principally a market for 
manufactured articles, including machinery. Neither 
has Spain nor Italy surplus capital for large invest- 
ments abroad which develop business, although they have 
some capital in South-American banks and other enter- 
prises. 

France has heavy investments in Brazilian railways 
and also in the railways of northern Argentina and in 
banks. She gets a return in supplying material through 
these investments as well as in dividend remittances. 
That her trade with South America is reasonably large 
is partly due to a social condition. No middle class has 
yet developed in any South American country, though in 
several of them there is the germ of such a class. Con- 
sequently, the consumers to be supplied are a large mass 
of very poor people who have limited purchasing power, 
or a small group of very rich people who have very large 
purchasing power, and who buy freely of luxuries. All 
the refinements of the arts of civilization are theirs, and 
France supplies these refinements, transmitted into com- 
mercial commodities. 

The primacy in South American trade is held by Great 
Britain for very sound reasons. Through the foresight 
of Canning, for three quarters of a century she had no 
competitor. Canning was the foremost trade diploma- 
tist of the early period of the nineteenth century. He 
encouraged the American Minister, Richard Rush, to 
believe that England would cooperate with the United 
States against the efforts of the Holy Alliance to restore 
Spanish monarchical power, because he foresaw that if 
the revolting colonies were again put under Spanish 
authority, Spain's trade monopoly would continue. A 
Canning myth regarding the Monroe Doctrine has been 



A MARKET FOR EUROPE 207 

evolved by some superficial historians who have imagined 
that the British premier was concerned only with a love 
for political liberty. It is unnecessary to dissipate the 
myth here. Before their independence was complete, 
the colonists had to defeat a British army at the River 
Plate.^ Canning wanted the commerce of the colonies 
for Great Britain, and he got it by the entirely legiti- 
mate means of encouraging their political indepen- 
dence, with the free market which was the sequence of 
that independence. 

British merchants at once established themselves 
throughout South America, and the currents of com- 
merce flowed to and from the United Kingdom. This 
trade was helped by means of the shipping facilities 
which from the beginning England maintained and 
which she enlarged and strengthened from time to time. 
But an even more potent promoter of British trade was 
her investments. A large share of the superabundant 
British capital seeking profitable fields for employment 
naturally overflowed into South America until, at the 
outbreak of the Great War, England had not far from 
14,000,000,000 invested there.^ These British invest- 
ments in South America are the fructifying source of 
British trade; they are also the explanation why the 
United Kingdom is not adversely affected by the racial 
and intellectual rapprochement of the South American 
countries with the Latin nations of Europe. 

England clung tenaciously to her South American 
business during the first years of the Great War, but 

1 See " The Monroe Doctrine and the Canning Myth," by Charles H. 
Sherrill, American Academy of Political and Social Science, April, 1914. 

2 See " Banking Opportunities in South America," Report of W. H. 
Langh, Special Agent of the Department of Commerce, 1915. See also 
Eeport of Special Agent Frederick M. Halsey on Investments in Latin 
America. 



208 AMERICAN FOREIGN TRADE 

as the struggle became more vital and her policy of main- 
taining exports had to yield to more pressing considera- 
tions, she lost considerable of this trade. Coal ship- 
ments had to be reduced because of the demands of her 
own industries and of the industries of her allies. Ma- 
chinery and railway supplies also suffered. Even her 
market in cottons was heavily curtailed. But the falling 
off was viewed as purely temporary, and none of the long- 
established connections was lost. When the United 
States became fully enlisted in the war, and the outcome 
no longer was in doubt, a British commercial commis- 
sion was despatched to the South-American countries. 
This was in the midsummer of 1918. It was the official 
notification that England was again out for South 
American trade. 

Within a fortnight after the armistice had been signed 
the British consulates throughout South America issued 
notices of the facilities which would be afforded mer- 
chants who wanted to go abroad to stock their empty 
shelves. Ships were also immediately available on 
which they could travel, and which could be depended 
on to bring back the goods they bought. These mea- 
sures helped England to regain some of her lost trade 
and also to enlarge her portion of Germany's commerce. 
They made it sure that she would continue to have her 
full share in South America as a market measured by 
past conditions. But it is not so certain that in the 
building of port works and public works of all kinds and 
in railways British capital in the future will be able to 
do in South America what it did in the past. That 
means that British trade will not grow proportion- 
ately with the growth of the South American market. 
But it will not diminish. 



A MARKET FOR EUROPE 209 

Germany's South American trade was one of the strik- 
ing chapters of her economic penetration into the whole 
world and of her commercial expansion under the evo- 
lution of the Prussian state. In the earlier years of 
this period, during the transformation from an agricul- 
tural kingdom or group of kingdoms into a grasping in- 
dustrial empire, the South-American field was culti- 
vated cautiously, yet persistently and systematically. 
Germany, without much surplus capital, and with none 
of the spirit of adventure which, in order to get large 
returns, undertakes vast mining developments and great 
railway enterprises, made investments of a conserva- 
tive character. In hydro-electric development, how- 
ever, she led all other countries. But principally her 
capital went into the nitrate fields, public utilities, banks, 
and commercial partnerships. 

Hamburg, with a thousand export firms doing busi- 
ness throughout the world, gave special attention to 
South America. Hamburg houses became partners in 
virtually every large importing firm with German con- 
nections. Germany also reaped some of the rich re- 
wards of the carrying trade from the capital she put into 
shipping lines. Handling the coffee crop of Brazil was 
partly a German enterprise. Out of all these multiform 
activities it resulted that while the German investments 
in South America relatively were small as compared 
with England, the commerce built up in a third of a 
century was not so greatly inferior to that which Eng- 
land had taken a century to develop. 

Whenever the peace imposed by the Allies on Germany 
permits her to have an export trade, her manufacturers 
will again look southward across the seas, even though 
they may be allowed a merchant marine too small to be 



210 AMEKICAN FOREIGN TRADE 

of much account as a national asset. Yet it does not fol- 
low that South America ceases to be a market for Ger- 
many or for German products. It is certain to be a 
continuous field for German commercial activity. This 
is not the common impression, but the common impres- 
sion frequently is formed on national feeling or personal 
desires rather than on knowledge. 

Germans settled in South America are to be considered 
in reviewing that continent as a market for German 
goods. The least important element among them is the 
nost numerous one. This is the German colony in south- 
ern Brazil. That colony, while in the third generation 
and with no refreshening stream of Teutonic immigra- 
tion, nevertheless was a real peril for Brazil. Its mem- 
bers preserved their racial identity, their language, their 
religion, their schools, and their customs. The schools 
and the churches were ruled from Berlin, because the 
subsidy came from there. After entering the war 
against Germany, Brazil took energetic measures to 
meet this peril from within and rigorously suppressed 
everything of a German character. Brazilian nation- 
ality in the future will dominate the States of Santa 
Catharina and Rio Grande do Sul, which were the seats 
of the German colonies. 

But the Colony was not a German commercial asset. 
Its numbers never exceeded 400,000, notwithstanding the 
frequent statements about the million Germans in south- 
ern Brazil. A million sounded large, and it had come 
into use long before the war. The Brazilian Govern- 
ment itself never gave encouragement to these figures. 

The truth about the German settlement was that as 
consumers of foreign goods the inhabitants were almost 
a cipher. They were very largely a rural population, 



A MARKET FOR EUROPE 211 

a people who had retrograded, and who were able to pro- 
duce among themselves substantially all the articles they 
consumed. They were in truth a primitive community 
with few needs which they cared to supply from with- 
out. 

Germany's real commerce was in providing goods for 
Brazilians themselves through the ports of Rio de Ja- 
neiro and Santos. Interest in the coffee crop gave the 
Hamburg firms a very valuable means of supplying re- 
turn cargoes, and these cargoes consisted of a great va- 
riety of manufactured commodities. The hatred grow- 
ing out of the war among Brazilians of Germany and all 
things German, and the elimination of Hamburg from 
the coffee trade, assuredly will subtract Brazil from the 
markets of Germany in South America, but this is not so 
in all the other countries. 

The Argentine Republic remained officially neutral 
during the war, notwithstanding the popular sentiment 
in favor of the Allies. The German commercial colony 
at Buenos Aires was most powerful. This commercial 
colony still exists. It may not draw directly on Berlin, 
and it may have little to remit to Bremen and Hamburg 
but it occupies a very distinctive place in the commerce 
of Argentina. German goods may be obtained indirectly 
from so-called neutral European countries, or the goods 
of other countries may be procured for distribution, yet 
they will be handled by German firms in Argentina, 
and in one sense will be a part of German trade in South 
America. Emigration from Germany to Argentina set 
in soon after the armistice was signed and this means 
German trade. 

Chile has a distinctive German population in the 
southern part. Unlike Brazil, Chile never allowe(J the 



212 AMERICAN FOREIGN TRADE 

language of the country to be ignored or its institutions 
to be forgotten. The so-called German colonies in Chile 
are bilingual, speaking both Spanish and German indif- 
ferently. As a consequence of the war they may become 
absorbed more fully into Chilean national life, but the 
German identity will not disappear for a long time. 
This means that there will be a preference for having 
German wants supplied through German sources. 

Chile, it is to be remembered, also remained neutral 
during the war. German capital investments and Ger- 
man business interests suffered in some degree as a" re- 
sult, but there is no general feeling of hostility on the 
part of the people, and no governmental policy of root- 
ing out German influence as on the part of Brazil. 

The examination, if extended into other countries, 
would give the same results. With German groups still 
powerful in trade and finance in all the leading coun- 
tries of South America, it is too much to say that Ger- 
many is eliminated from the South American markets, 
no matter what the trade statistics in the years imme- 
diately following the war may seem to show. 

The tragedy of commerce in South America is the 
story of Belgium. The heroic country there, as at home, 
was stripped of her all. Before the war the South 
American market was a valuable one to her. She sup- 
plied capital for Brazilian railways, and furnished the 
material for building them. She entered the market 
of Argentina with her special products, and developed 
a considerable trade there. She introduced her engines 
and railway equipment into Chile, and found a profit- 
able market in that country. She supplied other coun- 
tries with her fine fabrics. In the year before she be- 
came the victim of Germany's ferocity the exports from 



A MARKET FOR EUROPE 213 

Belgium to all South America were a definite source of 
her domestic prosperity. 

Rehabilitated Belgium some day may have this trade 
back, but the process of rehabilitation is a slow one, and 
in the meantime the commerce she once had goes to her 
allies and protectors. It forms part of the general vol- 
ume of European commerce in South America, and as 
an international factor may be credited to Europe 
proper. But a passing word of regret may be dropped 
that the South-American market cannot wait for Bel- 
gium's rehabilitation in order that she may have her 
proper proportion. The same thing may be said of 
France, but in a lesser degree, for France managed to 
maintain part of her South American trade in the most 
depressing periods of the war. 

Reviewing the field generally, it may be said that while 
the new era in the South American markets for Europe is 
one of readjustment, it is not one of new trade. Racial 
ties and geographical situation, with the facilities for 
intercourse thus existing, will continue to be favorable 
factors for Europe. But the governing factor of the fu- 
ture in the South-American market is the United States. 



CHAPTER XV 

SOUTH AMERICA AS A MARKET FOR THE UNITED STATES 

Aspirations from Clay to Blaine — Trade not hampered by tariff 
policy of the United States — Brazilian preference — Analysis of general 
commerce — Nature of increase during the war — Shift from Europe — 
Permanent and temporary gains — Character of after-the-war commerce 

— Causes of adverse and favorable balances — Basis of future growth 

— New business — Loans and investments — Development enterprises — 
What a billion dollars invested in South America will mean. 

CLOSER relations between the United States and 
the South American countries have been the 
aspiration rather than the achievement of Amer- 
ican statesmen since the time of Henry Clay. But until 
James G. Blaine projected his penetrating imagination 
into the future of the Western Hemisphere, it cannot be 
said that there had been a definite South-American trade 
policy on the part of the United States. The people were 
ignorant of the industrial opportunities and indifferent 
to the commerce. They did not need the markets, and 
there was too profitable employment for capital at hfene 
to incite them to look southward. 

Mr. Blaine was so far ahead of his time that after 
the lapse of a third of a century Pan-American Confer- 
ences have met without the mention of his name by or- 
ators who themselves have just discovered South Amer- 
ica and manifest the enthusiasm of original discoverers. 
An eminent successor in the office of secretary of state, 
Elihu Boot, returning from the visit in which his own 
vision of their future left a momentous influence on the 

214 



A MARKET FOR THE UNITED STATES 215 

peoples and the governments of the South American 
continent, said in an address before the Trans-Mississippi 
Commercial Congress at Kansas City in 1906: 

Twenty-five years ago, Mr. Blaine, sanguine, resourceful, 
and gifted with that imagination which enlarges the his- 
torian's understanding of the past into the statesman's com- 
prehension of the future, undertook to inaugurate a new era 
of American relations which should supplement political 
sympathy with personal acquaintance by the intercourse of 
expanding trade and by mutual helpfulness. . . . The policy 
which Blaine inaugurated has been continued; the Congress 
of the United States has approved it, subsequent presidents 
have followed it. Nevertheless, Mr. Blaine was in advance of 
his time. In 1881 and 1889 neither had the United States 
reached a point where it could turn its energies away from 
its own internal development and erect them outward towards 
the development of foreign enterprise and foreign trade, nor 
had the South American countries reached the stage of 
stability in government and security for prosperity neces- 
sary to their industrial development. 

Now, however, the time has come; both North and South 
America have grown up to Blaine's policy; the productions 
of trade, of capital, of enterprise of the United States, have 
before them the opportunity to follow, and they are free to 
foUow, the pathway marked out by the far-sighted states- 
manship of Blaine for the growth of America, north and 
south, in the peaceful prosperity of a mighty commerce. 

It is the commonest of misconceptions that trade rela- 
tions with the Southern Continent have been hampered 
by tariff policy, and that the market there has been re- 
stricted because of the restrictions which were placed on 
the market for its products in the United States. Poli- 
ticians, in the plenitude of their ignorance, have fos- 
tered this misconception. Yet in all the eccentricities of 
tariff legislation neither South America as a continent 



216 america:n^ foreign trade 

nor any particular republic has been discriminated 
against by the United States. Since the duty was taken 
off coffee during President Grant's administration, the 
United States continuously has admitted ninety-five per 
cent, and upward of the products of those nations free 
of duty. Rubber, coffee, cacao, bananas, and other 
fruits, and virtually all tropical agricultural products, 
have been on the free list. So have been copper and 
other minerals and nitrates. 

The Payne-Aldrich law added further to this largess 
to South America by free-listing hides, and the Under- 
wood-Simmons Act supplemented this concession by free 
wool and the cereals. Analysis of the imports from the 
South American countries for recent years shows that 
some of them have had more than ninety-nine per cent, 
of their products admitted to the United States free of 
duty. In the case of Brazil, the fraction under one hun- 
dred per cent, was so slight as to be imperceptible. It 
is correct to say that the United States admitted those 
products free for its own purposes, and not as a special 
favor to any South American country. The same state- 
ment might be made about the tariff legislation of all 
countries. It does not alter the fundamental fact that 
the Southern republics have had the benefit of free mar- 
kets in the United States. 

The only instance where products of the United States 
have received tariff concessions in South American 
markets, except during the brief life of the several reci^ 
procity conventions, is that of Brazil. What is known 
as Brazilian preference has been in force since 1904, ex- 
cept for one year during which it was intermitted. It 
is a voluntary discrimination on the part of Brazil in 
favor of certain commodities produced in the United 



A MAKKET FOR THE UNITED STATES 217 

States. The list has been increased from time to time 
until it includes wheat-flour, condensed milk, rubber 
manufactures, paints, varnishes, ink other than writing 
ink, type-writers, weighing scales, refrigerators, pianos, 
windmills, cement, dried fruits, school furniture and 
desks, and corsets. A uniform reduction of twenty per 
cent, from the Brazilian schedule rates is granted to 
these commodities, with the exception of flour, which re- 
ceives a preference of thirty per cent. Originally, flour 
received only twenty per cent, but at a period when flour 
from the United States was threatened with an entire 
loss of the Brazilian market. Secretary Knox secured an 
increase in the preference to thirty per cent. 

This preference runs from year to year. It is author- 
ized in the annual budget law passed by the Brazilian 
Congress, and is made effective by the decree of the exec- 
utive. Brazil also has shown a disposition to modify, by 
means of administrative rulings, the duties on some 
products of considerable importance to the United 
States; but this is in no sense a discrimination, since 
other countries also are benefited by the rulings. The 
total trade affected by the preference forms only a small 
percentage of the imports into Brazil from the United 
States. 

In the ten years following Mr. Root's address there 
was something in the nature of systematic policy to en- 
large the trade of the United States in the markets of 
South America. Analysis of the trade in the decade 
before the Great War shows its nature. The South 
American imports from the United States consisted of 
mineral oils, lumber, mining machinery, farm machinery, 
steel rails, locomotives and other railway equipment, 
miscellaneous iron and steel products, electrical appa- 



218 AMERICAN FOREIGN TRADE 

ratus, ofBce appliances, flour, lard, and bacon, and that 
vague, but wide-embracing, category known as general 
merchandise. The market for textiles was the most lim- 
ited of all. There were no primary raw materials of 
consequence. Mineral oils, lumber, and flour might be 
classed as semi-manufactured articles, but the bulk of 
the imports were manufactured commodities. The total 
values amounted approximately to $150,000,000, mea- 
sured by the prices on leaving the United States. Mea- 
sured by the import values of the South American coun- 
tries the total would be larger. 

The United States was a reciprocal market princi- 
pally for primary raw materials from South America. 
There was rubber, with the tropical food products, coffee, 
cacao, and bananas. The products of temperate agri- 
culture imported were chiefly hides and wool. The min- 
eral products included the precious metals, but princi- 
pally copper and the nitrates. 

In the early stage of the war, while the United States 
remained an aloof neutral, there was a reduced commerce 
both in volume and value. The leading South American 
republics were passing through commercial and financial 
crises which already had reduced their purchases from 
all countries. These crises were accentuated by the war 
uncertainties and the difficulties of transportation. Re- 
lief came when the United States began to absorb some 
of the products for which the European market had 
been either entirely closed or restricted. It increased 
the purchases of Brazilian coffee in a constantly as- 
cending degree. Much larger quantities of Brazilian 
hides were taken, the imports being trebled in two years. 
Rubber was taken in augmented quantities, although 



A MARKET FOR THE UNITED STATES 219 

there were some interruptions in this movement due to 
England's policy of controlling shipments. The im- 
ports of cacao were doubled. 

The Argentine Republic, with the war demand full 
upon her, and with England and France keeping trans- 
portation open in order to assure themselves the benefit 
of the staple foodstuffs, had apparently little need of 
a new market, yet it proved to be a convenience to have 
some of her surplus crops absorbed. There was an 
abundance of maize, or corn, and the United States, not- 
withstanding its own huge crop, took part of the Argen- 
tine surplus. The purchases of hides advanced in quan- 
tity fivefold. A market was opened for flaxseed, which 
previously had not been in demand. In two years the 
purchases of wool advanced four-fold. The United 
States also absorbed a heavy proportion of Uruguay's 
hides and wool. Bolivian tin, in the form of concen- 
trates, or raw material, was given a market in the United 
States by the enterprise of American smelting interests. 
These established a smelter on the coast of New Jersey. 
This absorbed substantially all of the Bolivian tin output 
during the war. 

From Chile the United States more than doubled its 
purchases of nitrates, for which the European market 
had been partly closed through the shutting off of Ger- 
many and the spoliation of Belgium. The imports of 
copper were greatly increased. Peru was benefited by 
the United States doubling the purchases of copper and 
^taking tropical agricultural products in augmented quan- 
tities. Other South American countries were benefited 
in the same way by the purchase of their staple crops, 
for which the European market had become restricted. 



220 AMERICAN FOREIGN TRADE 

The reciprocal South American market was not pro- 
portionate to the absorption by the United States of 
South American products, but this was in some measure 
a war condition, and related especially to restricted 
transportation facilities. In some articles a foothold 
was obtained, while the sale of others was visibly in- 
creased. England's inability to furnish sufficient coal 
resulted in heavy imports of American coal by the Ar- 
gentine Republic, Brazil, and Uruguay. 

Iron and steel products generally and railway ma- 
terials particularly were not greatly augmented, because 
the mills in the United States were compelled to provide 
for the European belligerents and for the war prepara- 
tions at home. Moreover, there was little new railway 
building in South America. Some forms of machinery, 
however, were bought in reasonable quantities, and auto- 
mobiles showed a steady progression. Tinplate was an 
exception to the rule regarding iron and steel products. 
The imports of it were heavy. Miscellaneous merchan- 
dise also advanced in volume as well as in value. The 
most significant gain was in cotton goods. 

After the United States became a belligerent, the ab- 
sorption of South American raw material products con- 
tinued, but the purchases were made in conjunction with 
the Allies and the distribution in the same manner. 
Some of the exports to South America grew, yet in many 
of the commodities there was a falling off due to the 
further diversion of mills and factories to munition 
works. The lack of transportation facilities also oper- 
ated as a check on the general trade movement. These 
statements are made without reference to statistical de- 
tails concerning particular commodities. Making al- 
lowance for inflated war values, the United States was 



A MARKET FOR THE UNITED STATES 221 

able to show an increase in percentages as well as in 
quantities and total values in the South American mar- 
ket. This was the evidence of real gain. 

The shifting of the trade is shown by the following 
tabular exhibit of the three years before the war and 
three years during the war, taken from the Bulletin of 
the Pan-American Union: 



SOUTH AMERICAN REPUBLICS — IMPORTS 





United 
Kingdom 


Germany 


France 


United 
States 


Three yrs. be- 
fore the war : 

1911 

1912 

1913 


$262,099,378 
271,596,755 
285,555,025 


$166,057,707 
179,183,276 
188,9^00,663 


$ 77,470,841 
84,009,125 
89,520,389 


$129,701,069 
153,363,245 
167,523,500 


Total .. 


819,251,158 


534,141,646 


251,000,355 


450,587,814 


Three yrs. dur- 
ing the war: 
1915 . . . 


134,893,988 
151,330,088 
135,391,498 




25,935,543 
33,135,448 
29,237,751 


157,281,670 
245,039,475 
328,104,962 


1916 ... . 




1917 








Total 


421,615,574 




88,308,742 


730,42€,107 






3 yrs' in- 
crease. 


1397,635,584 
148 




1162,691,613 
165 


279,838,292 


Per cent. 




62 









1 Decrease. 

The character of the after-war trade between the 
United States and South America is not likely to change, 
because the essential conditions are the same. South 
America will continue to want principally manufac- 
tured articles, and will be able to supply tropical food 



222 AMERICAN FOREIGN TRADE 

SOUTH AMERICAN REPUBLICS — EXPORTS 





United 
Eangdom 


Germany 


France 


United 

States 


Three yrs. be- 
fore the war : 

1911 

1912 

1913 


$236,722,421 
270,693,412 
281,988,119 


$139,392,981 
156,625,332 
162,026,169 


$ 97,968,551 
103,831,319 
104,971,303 


$ 194,918,560 
247,094,781 
204,287,389 


Total .. 


789,403,952 


458,044,482 


306,771,173 


646,300,730 


Three yrs. dur- 
ing the war : 
1915 


297,984,630 
294,210,604 
324,497,601 




95,579,973 
140,507,243 
144,944,925 


341,183,532 
453,213,385 


1916 




1917 




592,275,562 






Total . 


916,692,835 




381,050,141 


1,386 672,479 








3 yrs' in- 
crease . 


127,288,883 
16 




74,278,968 
24 


730,371,759 


Per cent. 




113 









stuffs, and products from the temperate regions, such 
as hides and wool. She will have mineral products in 
steadily increasing quantities to dispose of. There are, 
however, some special considerations, that affect the 
trade relations with particular countries. 

The United States, in determining the place it will oc- 
cupy in the South-American markets, will be compelled 
to take note of what may be called an international 
nuisance. " Dumping " in neutral territory is one phase 
of world commerce. It could riot be entirely controlled 
by international trusts if these trusts could be again 
formed. The field is too inviting, and the inducements 
for price-cutting are too strong. The elimination of 
Germany, with her commercial immorality and her trade 



A MARKET FOR THE UNITED STATES 223 

policy of dumping in foreign markets, does not entirely 
eliminate the disturbing factor. 

Since South America is so large an importer of man- 
ufactured commodities, it is to her interest to encourage 
the competition of many countries in her market, and 
dumping is one form of this competition. She will do 
this without fear that her consumers will be unfavorably 
affected by finding themselves at the mercy of a monopoly 
when once the market has been obtained. The defeated 
competitors will be too watchful and too eager to regain 
a foothold for any one country to retain the market for 
a given commodity at extortionate prices. This means 
that the United States must be prepared to meet the 
prices of its competitors. 

It is the common knowledge that South America as 
a whole, and the majority of the respective countries, 
have large apparent balances of trade in their favor. 
This is due to their ability to supply the rest of the world 
with raw materials many of which are of the nature of 
monopolies of production. This apparent balance is 
partly offset by remittances for interest payments on 
loans held abroad and on development enterprises of 
foreign countries. The United States has not yet 
reached the point where it has an invisible balance of 
this character to offset the apparent balance created by 
the excess of exports from the South American countries 
over imports. 

The North-American people are such pronounced con- 
sumers of coffee that this staple alone insures Brazil a 
balance over what normally she can purchase in the way 
of commodities. Each person takes about nine and a 
half pounds of coffee annually, and nine pounds of this 
quantity comes from Brazil. Consequently, so trifling 



224 AMERICAN FOREIGN TRADE 

a thing as the coffee-cup is an important factor in South- 
American trade. The policy of the United States is and 
should be to reduce this adverse balance as largely as 
possible by exporting commodities to Brazil, but it 
should not be held as a grievance against Brazil that an 
exact equilibrium cannot be established. 

A somewhat similar condition obtains with regard to 
Chile. The growing purchases of Chilean nitrates and 
of copper have built up a favorable balance of trade for 
that progressive country. The increase of imports from 
the United States for industrial purposes serves to nor- 
malize the economic situation, but an equilibrium may 
not be obtained for many years to come. Yet Chile con- 
stantly proves to be a better customer for American pro- 
ducts. 

The Argentine Republic presents a contrast. There 
the normal balance is against her and in favor of the 
United States. A very valuable market has been built 
up for farm machinery of the kind in which the United 
States is preeminent. Argentina, having no basis for 
a basic iron and steel industry, will always be a heavy 
buyer of farm implements abroad, and the United States 
will be her principal source of supply. She cannot find 
a market in this country for products of her own in quan- 
tities sufficient normally to offset these purchases. The 
reason is that her staple products are agricultural, and 
a large market cannot exist for them in a country with 
the vast agricultural area of the United States. Nom- 
inally, the two countries are competitors in the world's 
markets, because both are producers of agricultural com- 
modities. Actually, the competition is slight, because 
of the circumstances which reduce the surplus agricul- 
tural products that the United States has for export. 



A MAKKET FOR THE UNITED STATES 225 

This is a normal relation but it is subject to exception, 
as a statistical citation will show. In the year 1913 the 
imports into Argentina from the United States amounted 
to 150,000,000, while the exports were $23,000,000. The 
following year the conditions were almost exactly re- 
versed. The imports from the United States were $30,- 
000,000, and the exports to it $50,000,000. There was a 
reason for such an astonishing reversal of trade balances. 
In 1914 Argentina was in the midst of a serious depres- 
sion, and her purchases abroad were enormously cur- 
tailed. Agricultural machinery was one of the heaviest 
amounts in this curtailment. 

In the same year the United States, notwithstanding 
its own large volume of farm crops, was short on several 
commodities. Corn and oats were imported from Ar- 
gentina. A market also was opened for flaxseed, and 
Argentine meats for the first time were supplied to North 
American consumers. These two circumstances — that 
is, Argentina's decreased purchases of manufactured 
articles on account of her commercial depression, and 
the new market opened in the United States for her agri- 
cultural products — brought about not an equilibrium, 
but a reversal of trade balances. The succeeding years 
were more normal, but they cannot be taken as a perma- 
nent measure of the mutual commercial movement. 
The probability is that the balance of trade between the 
United States and Argentine always will be in favor of 
this country, yet the United States will find its Argen- 
tine market increasingly valuable in the degree that by 
purchases of Argentine agricultural products some ap- 
proach is made to an equilibrium. 

Recurring to the whole field of South America as a 
market for the United States, some conclusions may be 



226 AMEKICAN FOEEIGN TEADE 

drawn from what has been stated in the preceding pages, 
and some statements of a general character may be made. 

When the Great War began, the United States was be- 
ginning to retrieve the laggard years in which no ef- 
fort had been made to participate in the South Ameri- 
can market in a systematic manner. Its exporters and 
manufacturers were becoming real competitors with Eu- 
rope and were in a way to obtain a proportionate share of 
the trade. During the war period there was a definite 
gain, much of which was due to the elimination of Ger- 
many and Belgium, and some of which will be held per- 
manently. But the real gain was of a more positive 
character. 

> Progress was made in facilitating the interchange of 
commodities when, under the provisions of the Federal 
Eeserve Act, the banks of the United States established 
branch banks in South America. The transactions made 
possible by this course, while not insuring dollar ex- 
change, were a step in that direction. There was also 
a tendency to adjust trade to the system of long credits, 
which might be called an approximation on both sides. 
Some advance was made in the knowledge of local trade 
customs and requirements, and even in the language of 
the countries in which the business was to be done. 

These advances assure the United States a fair propor- 
tion of the future trade of South America. They assure 
that it will occupy a plane of equality with Europe. 
They offer no prospect of monopolizing the commerce to 
the exclusion of that continent, nor is it desirable that 
they should offer such a prospect. Europe must live. 
Foreign trade is food to her, and South America must 
furnish a part of the aliment. 

There is a wider horizon to which the United States 



A MARKET FOR THE UNITED STATES 227 

can look. This is in new business. Some of the broad- 
est-minded industrial leaders in the United States ex- 
port trade refused to enter the South American field 
merely to take business away from those countries 
which were already established there. If there was no 
increase to be had, they did not think it worth their while. 
Where they could see an increase, they entered into com- 
petition for existing trade, but only as the basis for 
future participation. That is the prospect that now 
unfolds. Back of it, however, is what may be called the 
psychological element. 

A better understanding of Hispano-American char- 
acter, or, to be more correct, or Ibero-American charac- 
ter, is the essential. It is almost a platitude to talk 
about promoting a better knowledge, but the subject 
cannot be ignored. In dealing with South Americans 
extremes are to be discouraged. In the past there has 
been the patronizing tone based on ignorance, which was 
intensely irritating to plain South-American business 
men as well as to cultivated South Americans. This 
has been followed by a tendency to fulsome flattery, also 
based on ignorance. Usually it has been accompanied 
by a readiness by North Americans to defame their own 
country and to attribute to it motives and policies which 
never existed. 

In their diplomatic controversies with the United 
States, the South-American countries often have been in 
the wrong. Their public men and their intellectual 
classes know it, and nothing is gained by pandering to 
the prejudices of those who do not know or do not care 
to know. It is always well, therefore, for the North 
American to maintain his self-respect and not to defame 
his home country as a means of gaining favor. With 



228 AMERICAN FOREIGN TRADE 

this reservation, the work of building up trade in South 
America by first establishing a sympathetic understand- 
ing of the South-American people may go forward on the 
right lines. That is the psychology of the South-Ameri- 
can markets. 

There is another psychological factor which is even 
more vital. This is what may be called the visibility of 
the United States. Its presence in South America in 
the form of capital is what is needed. Branch banks are 
helps, but they do not create capital; they only fix the 
channels in which it flows. The prime need, therefore, 
in order to assure a large volume of new business in 
South America, is for the United States to export some 
of its capital as well as its products. Europe will not 
be able further to finance the South American republics, 
although England and France both hold tenaciously to 
the securities they already possess. When these were 
pledged as collateral for war loans in the United States, 
it was with the definite intention of not parting with the 
collateral, because of its value as a trade asset. But the 
new loans which will be required for government work 
such as harbors, port works, irrigation, and railways, 
cannot be supplied by England or France. The war 
burden of those nations is too heavy. 

These loans must be provided by the United States. 
In providing them, it provides itself with a very definite 
market for material. Virtually no loans existed at the 
close of the war. A short-term borrowing of |25,000,000 
by the Argentine Republic was satisfied and canceled. 
A municipal loan of Sao Paulo, Brazil, has some years 
to run. A similar loan of Rio de Janeiro was floated 
after the war. Two or three minor loans of less than a 



A MARKET FOR THE UNITED STATES 229 

million dollars each were made to other municipalities. 
Thej are a trifle. 

Investments in development enterprises have been on 
a much larger scale. The spirit of romance and adven- 
ture which is latent in every American industrial and 
financial leader, and which finds its satisfaction in min- 
ing ventures, has the most ample field in South America. 
It already has been responsive to great opportunities 
there. The abandoned copper deposits of Teniente, fifty 
miles from the capital of Chile, were reopened through 
American enterprise when cheaper processes of treating 
ores were discovered. In ten years an industrial com- 
munity of ten thousand people sprang up. 

In a shorter period the greater copper-field of Chuqui- 
camata, in northern Chile, was revivified from an aban- 
doned mining camp to become the most gigantic copper 
property in the world, with an industrial community of 
15,000 persons dependent on it. Other mountains of 
copper at Portrerillos and elsewhere in Chile also have 
been attacked by bold and venturesome American capi- 
talists, with the prospects rapidly turning into certainty. 
The great iron mountain at Tofo responded to the enter- 
prise of an American steel maker, and its ore becomes 
tributary to Bethlehem. In Peru the Cerro de Pasco 
mine of copper, after the investment of many millions in 
American dollars, has become one of the most productive 
properties of South America. It is development enter- 
prises of this character which, by creating new business, 
enlarge the South American market for the manufactur- 
ers of the United States. 

These and similar American investments are the real 
basis of the trade of the United States in South America 



230 AMERICAN FOREIGN TRADE 

in the new era. At its beginning they amount approxi- 
mately to half a billion dollars, one half of which is in- 
vested in Chile alone. ^ 

The Argentine investments are principally in the pack- 
ing-house plants and in collateral enterprises. Packing- 
house plants also furnish a considerable part of the Bra- 
zilian investments, although railways and water-power 
plants are of importance. Canadian and British money 
is in these Brazilian enterprises, but it is intermingled 
with capital from the United States in a manner hard 
to differentiate. The point is that the partnership of 
this capital with Canadian and British associates assures 
the purchase of material in the United States as well as 
in England. 

The Peruvian investments are mainly in copper mines 
and the railway and hydro-electric plants which were 
constructed to develop the mining properties ; but there 
are also other investments in the United States in Peru 
which from their nature insure the purchase of material 
in this country. 

The future of North American investments in South 
America can be judged by the existing ones. Mines 
and railways and hydro-electric plants for the entire 
continent, packing-house and meat refrigerating plants 
for the great live-stock country of southern Brazil, 
Uruguay, and Argentina — all these are the principal 
reproductive fields that are open to North American 

1 This estimate is based on the author's calculations from personal 
knowledge. The report of Special Agent Halsey of the Department of 
Commerce on South-American investments gives a somewhat smaller 
total; namely, Argentine, $100,00€,000; Chile, $225,000,000; Brazil, 
$50,000,000; Peru, $50,000,000, and other countries, $25,000,000. The 
Argentine loan was included in this estimate, and should be deducted 
from the total as of the year 1919. 



A MARKET FOR THE UNITED STATES 231 

capital. Port works and irrigation works and other 
forms of public improvement undertaken by govern- 
ments, states, and municipalities, are the fields for the 
investment of capital in the form of loans. It is these 
two classes that create new business by the markets 
they open. It is they, too, which are the proof to the 
several countries that the United States is seeking to 
facilitate their interests as well as its own. They are 
the real basis of the future markets. In the next ten 
years, the United States should supply South America 
with a billion dollars in the form of loans and actual in- 
vestments in development enterprises. 



CHAPTER XVI 

ECONOMIC DESTINY IN THE CARIBBEAN 

What the purchase of the Danish Islands foreshadows — The Carib- 
bean crescent as an economic curve — Cuba's sugar-cane and tobacco — 
Porto Rico's coffee and sugar — British possessions — Jamaica an iso- 
lated unit — Proposed Canadian- West Indian Federation — Trade Agree- 
ment of 1913 — Panama and Central America — Bananas and coffee — 
Foreign investments — Economic aspect of increased productiveness in 
the Caribbean area — Influence of the United States — Positive national 
policy — The protectorates — Nicarauguan treaty — Benevolent coercion 
— Santo Domingo's objection — Significance of the Haitian treaty — 
Promise of stability and order — Future commerce. 

NAVAL strategy and national defense caused the 
flag of the United States to float over what was 
the Danish West Indies, the Virgin Islands his- 
torically, and so designated when they became American 
territory. It is one of the consequences of the Great 
War, although it was consummated before the United 
States entered the war. It is also the realization of a 
deferred chapter of manifest destiny. 

No thought of commerce entered into the purchase of 
these islands. The trade of the whole group is not ca- 
pable of much expansion. Yet the acquirement of St. 
Thomas is a further step in the commercial control of 
the Caribbean area which geography decrees. It dispels 
the dream of a British-Caribbean confederation, or a 
Canadian-West India union. It foreshadows the dis- 
appearance of the Dutch flag from Curagoa, and per- 
haps in the lapse of time of the French standard from 
Martinique and Guadeloupe. 

232 



ECONOMIC DESTINY IN THE CARIBBEAN 233 

The United States has had a close relation with the 
Caribbean area from the colonial period, when, after 
Cromwell's seizure of Jamaica, charts of " ye Windward 
Passage " and of the " West Indies from Cape Cod to the 
River Oronoque " appeared in London. In Revolution- 
ary days and thereafter the West Indian commerce was 
important enough for the United States to stipulate 
for its rights in the carrying trade, and even to include 
them in the threatened war with France, and in actual 
war with England in 1812. In those days the trade was 
very largely a New England one. It was a New-Eng- 
lander, Timothy Dexter, who, when warming-pans went 
out of fashion, made a fortune by buying them up and 
shipping them to the West Indies, where they were sold 
at a profit for the ladling of molasses. Later the trade 
became less a New England monopoly. New York be- 
came interested in it, and Philadelphia, and still later 
the South Atlantic ports and New Orleans. 

The island rim of the Caribbean crescent extends from 
the westward end of Cuba to the South American main- 
land above the mouth of the Orinoco. The mainland 
between the two horns stretches from British Guiana 
along the Venezuelan and Colombian coasts, Panama 
and Central America to the tip of the Yucatan peninsula. 
Jamaica, and some of the lesser West India Islands, lie 
well within the crescent. The whole West India group 
was described by Thomas Coke, a Wesleyan missionary 
of the eighteenth century, as the scattered fragments of 
a broken continent situated in an extensive excavation 
apparently scooped out by the hand of Providence. The 
bold curve of the Windward and Leeward Islands from 
St. Thomas to the South-American coast-line completes 
the island rim of the crescent. North-American expan- 



234 AMEKICAN FOREIGN TRADE 

sion is following a geographical line along the bend of the 
crescent. Caribbean commerce cannot be understood 
without the knowledge of this political tendency, al- 
though definite political purpose may be lacking. 

Commerce ceases to be prosaic when it becomes the 
means that may unite the scattered fragments of the 
broken continent into a commercial commonwealth un- 
der a political shield. The process works out through 
the operation of geography acting on economic tenden- 
cies, in this instance the tendency of the islands, by force 
of economic gravitation, to be drawn to the United 
States, and the tendency of the national policy of the 
United States to draw them to it. 

Cuba is a protected American State, republic of Cuba 
though it be. Porto Rico is territory of the United 
States, as are the Virgin Islands, with St. Thomas as 
the naval base. The island which comprises Haiti and 
Santo Domingo is a protectorate of the United States, 
whatever official terminology may be used to designate 
the status of the respective governments. A corollary 
of this status is the value of stability in enabling the nat- 
ural resources of these two countries to be developed 
and thus their commerce increased. 

Isolated and widely separated as are the islands of 
the Caribbean, it is difficult to analyze their commerce 
as a whole ; yet its nature is simple. The principal prod- 
ucts are those of tropical agriculture. Sugar-cane is 
grown in the majority of them. After it, come coffee, 
bananas, and other fruits; cacao, tobacco, hardwoods, 
and dyewoods, and the variety of tropical products which 
in the aggregate form a considerable element in ex- 
port trade, although the separate commodities amount 
to little in themselves. It is apparent, therefore, that 



ECONOMIC DESTINY IN THE CARIBBEAN 235 

the Caribbean Islands always will have products to sell 
which are wanted in the temperate climate. In return 
they require the products of temperate agriculture, 
chiefly flour and packing-house goods, and manufactured 
articles, including large quantities of textiles. 

Cuba in area, population, resources, and geographical 
situation is the most important factor in present and 
prospective Caribbean commerce. The island industri- 
ally and economically is a prospective four-million-ton- 
sugar-cane proposition. 

Production of sugar-cane has not yet reached the maxi- 
mum. Under the control of Spain, the largest crop in 
the history of the island up to that time was obtained 
in the years 1894 and 1895. In each of those twelve- 
month periods it slightly exceeded 1,000,000 tons. The 
insurrection which began in 1895 destroyed all normal 
bases of production until 1904, when the output again 
exceeded a million tons. From this time on the increase 
was steady until in the crop year 1915-16 the production 
was in excess of 3,000,000 tons. For the crop year 
1917-18 it was larger. In 1919 it approximated 4,000,- 
000 tons. With world peace restored, and the beet sugar 
crop of the European countries again normalized, Cuba 
cannot look forward to the excessive demand of the war 
period and the high prices then prevailing ; but with the 
consumption in the United States constantly increasing, 
she can depend on a market for 4,000,000 tons and up- 
ward at good average prices. This assures her a large 
purchasing power. 

The fine tobacco, with its excellence of leaf for flavor 
and aroma which has created a world-wide demand, is of 
limited productive capacity. This is shown by the fail- 
ure to increase the crop during the periods of abnormally 



236 AMERICAN FOREIGN TRADE 

high prices, when there was every incentive to such a 
demand. The Vuelta Aba jo district of Pinar del Rio, in 
which the very finest leaf is produced, is of very limited 
area. The Partidos leaf, which is grown in the eastern 
part of the province of Pinar and in the western belt of 
Habana province, is also of limited production. Cuba 
may count on 50,000,000 pounds of tobacco for export. 
Because of its high quality, this is a sensible addition to 
the sugar, but it is only an addition. The value of the 
sugar products is tenfold that of the tobacco products. 
Chiefly because of the sugar crop, Cuba has advanced 
from a foreign commerce of |150,000,000 to |TOO,000,000 
annually, and the bulk of this commerce is with the 
United States. 

In the economic sense, Porto Rico also means sugar, 
an annual crop of 500,000 tons being the normal produc- 
tion. Coffee, since the market for it was created in the 
United States, has become a reliable source of income. 
The trade of the little island is a valuable possession 
commercially, but the mainland of the United States is 
a more valuable market for her than she is for conti- 
nental United States. Her commerce with all countries 
is a trifle in comparison, less than ten per cent, of both 
exports and imports. It must be considered, neverthe- 
less, in resolving the factors of Caribbean commerce. 

Physically and productively Haiti and Santo Domingo 
are one. Politically they are two distinct governments, 
with a frontier-line and with a racial and language line 
also, since Haiti is the Black Republic, whose people 
speak a French patois, and Santo Domingo is Spanish 
in race and language. Haiti's resources consist in cof- 
fee, sugar, fruits, and tropical woods. Santo Domingo's 



ECONOMIC DESTINY IN THE CARIBBEAN 237 

are similar, although sugar, cacao, and tobacco are more 
important than coffee. 

The trade prospect as to Haiti and Santo Domingo is 
largely a political one, with an economic background. 
The prospect as to the British West Indies is an economic 
one, with a political background. Geography is a de- 
termining factor. 

The British possessions in the West Indies comprise 
twelve thousand square miles of territory, an area about 
equal to the States of Delaware and Maryland. The 
population is approximately 1,500,000 inhabitants. The 
Bahama group of scattered coral reefs constitute one 
third of the area. Outside of Bermuda, they are of no 
economic value. They serve chiefly as lighthouse sta- 
tions. They are not within the Caribbean geographical 
sphere. 

The Windward and Leeward groups of the Antilles, 
with other scattering islands, constitute another 4000 
miles of area. They may be said to have geographical 
homogeneity. Barbadoes and Trinidad are the chief is- 
lands of this group. They are on the outlying rim of 
the Caribbean crescent, and are easily accessible on the 
ocean routes. The export products are sugar, cacao, and 
other tropical agriculture. Demerara, off the South 
American mainland, is the chief source of sugar produc- 
tion. The island of Trinidad, which, like Demerara, ap- 
pertains to British Guiana, is the source of asphalt. All 
these islands are nearer to the United States than to Eng- 
land by from one thousand to fifteen hundred miles. 
Yet they lie in the route of the steamers proceeding from 
England to Panama, and they have direct routes of 
communication with the United Kingdom, so that there 



238 AMERICAN FOREIGN TRADE 

is a geographical ground on which to foster their com- 
merce with England. 

Jamaica is the isolated island. She lies within the 
hollow of the connecting chain of American possessions 
and protectorates, of which the onter rim is Porto Rico 
and St. Thomas, and the inner rim Haiti, Santo Do- 
mingo, and Cuba. The area of Jamaica is in excess of 
4000 square miles, or more than one half the habitable 
area of the British West Indies. The population is be- 
tween 850,000 and 900,000, or considerably more than 
one half the total number of inhabitants of these English 
possessions. The exports to the United States comprise 
substantially fifty per cent, of the whole, while the im- 
ports from this country are larger. Approximately half 
the total trade of the British West Indies is the trade of 
Jamaica, and more than half of that is commerce with 
the United States. 

The abolition of slavery in Jamaica in 1830 was the 
death-knell of the sugar industry. For half a century 
after freedom this industry rose and fell spasmodically, 
but it never regained its former activity. Prosperity 
was restored to the island when a Yankee sea-captain 
put the fruit industry on a solid footing and began rais- 
ing bananas for shipment to Boston. This fruit culture 
has been steadily fomented under American capital, and 
the result has been that some British capital has taken 
courage and has built up a trade in bananas and oranges 
with Jamaica. 

Nevertheless, the island has experienced periods of 
severe economic distress, and whenever this has hap- 
pened, the planters and the business men have agitated 
annexation to the United States. The population of 
color, negroes and maroons, which comprises all but 20,- 



ECONOMIC DESTINY IN THE CARIBBEAN 239 

000 of the inhabitants, has been apathetic. No one in 
the United States has paid any attention to Jamaica's an- 
nexation suggestions, and good-natured Americans have 
been mildly astonished occasionally to find themselves 
attacked as Yankee imperialists who were bent on wrest- 
ing one of England's numerous ocean gems from the 
crown of the mother country. 

When projects for a British- West Indian confedera- 
tion have been under consideration, Jamaica always has 
been looked on as one of the prospective members. The 
navy yard at Port Royal, across from Kingston, has been 
an argument, since it is the headquarters of the British 
We^t India squadron. There are also historic mem- 
ories and sentiment, but in the economic and geographi- 
cal sense Jamaica has nothing to bind it to the other 
British possessions in the Caribbean or to Canada. 

The project of a Canadian-West India federation, with 
the dominion as the dominating element, is a latter-day 
agitation. Such a union in the political sense is so im- 
probable as to require little consideration, but there have 
been tentatives toward closer commercial connection, 
with a view both to trade advantages and to the extension 
of the dominion's political influence. 

When the Canadian-West Indian trade agreement was 
negotiated in 1913, this political sentiment was given ex- 
pression, and those of the colonies which were holding 
back received strong hints from London that the Im- 
perial Government desired that favorable action be 
taken. The principal purpose of the agreement was to 
give the dominion flour manufacturers the market pre- 
viously held by the flour-mills of the United States. The 
only concession of value which Canada had to offer was a 
preference on sugar, and the value of that was slight. 



240 A3IERICAN FOREIGN TEADE 

The West India colonies that were the original parties to 
it were British Guiana, including Demerara and Trini- 
dad, Barbadoes, St. Lucia, St. Vincent, Montserrat, An- 
tigua, and St. Kitts-Nevis.^ 

Jamaica, notwithstanding the pressure from London 
and from the other British West Indies, refused to par- 
ticipate in the negotiations. She was afraid that if she 
discriminated against American flour, the United States 
would discriminate against her products. Canada of- 
fered little in the way of an advantageous market to her, 
certainly nothing that could compensate for the loss of 
the markets of the United States. Notwithstanding her 
refusal to participate, Jamaica was voluntarily given 
the benefit of the arrangement, although making no con- 
cession to Canadian flour. At the end of the three years, 
however, finding that the United States continued to 
give her a free market, she yielded to the pressure from 
London and Canada and entered into the agreement. 

While the products of the United States suffered some 
inconvenience, no notable change resulted in the com- 
merce of the British West Indies, and neither Canada 

1 The leading points in the agreement are : 

A. The concession of twenty per cent, on Canadian products im- 
ported into the colonies as against the duties on similar goods when 
imported from any foreign country. There is a special provision that 
on flour the preference in favor of Canada shall not at any time be 
less than twelve cents per hundred pounds, which is equivalent to 
twenty-four cents a barrel. 

B. The products of the colonies imported into Canada are given 
twenty per cent, preference on similar goods imported from foreign 
countries. On sugar the preference provided is more than twenty 
per cent, and Canada abrogates a concession heretofore given to foreign 
sugar imported for refining which was claimed to be destructive to the 
West Indian preference. 

C. The governments of the various colonies and of the Dominion may 
provide that to be entitled to the concessions granted to the products 
enumerated these products shall be conveyed by direct shipment. 



ECONOMIC DESTINY IN THE CAKIBBEAN 241 

nor they reaped a discernible benefit. The steamship 
sailings between Halifax and British West India ports 
were not visibly augmented, and the dream of building 
up a Canadian merchant marine with a West India base 
vanished. 

The entire scheme is artificial. Geography is all 
against it. It has no economic foundation. Yet with 
the impetus given to the imperial impulse by the war, 
the project may again be agitated, and a serious effort be 
made to form a Canadian-West India federation. 
Should the discriminating duties become a serious hin- 
drance to the normal trade of the United States, the Gov- 
ernment undoubtedly will find a remedy in its own tariff, 
and then the question will arise how far the imperial 
impulse can struggle against geography and manifest 
destiny. Jamaica is a good market for the United 
States, but the market of more than 100,000,00 people in 
the United States is a better one for Jamaica, Economic 
gravitation draws Jamaica to the United States. Impe- 
rial preference cannot change this condition, although it 
may hold out the promise of a market for sugar, 
and Jamaica may seek to favor the manufactured pro- 
ducts of the United Kingdom. Commercial union with 
Canada is just as unpromising. 

There remain to be considered the Panamanian and the 
Central American shore of the Caribbean. The opera- 
tion of the canal and the employes and military forces 
kept on the zone provide a market, but it is a market 
that cannot be considered as part of Panamaian com- 
merce, since the Canal Zone is both administratively and 
politically territory of the United States. Yet the move- 
ment of supplies creates a commercial activity in which 
the whole isthmus shares. Apart from the Canal Zone, 



242 AMEKICAN FOKEIGN TRADE 

the Republic of Panama productively is the source of 
supply to the United States for bananas, and these in 
themselves form a considerable commerce. 

Coffee and bananas are the principal export products 
of Central America. Salvador is the only one of the 
five republics which lacks a frontage on the Caribbean. 
Guatemala, Nicaragua, Honduras, and Costa Rica all 
look from their shores to the United States. The pro- 
duction of coffee is principally on the highlands of the 
Pacific slope, and the canal furnishes the convenient 
route for this product, which has its best market in Eu- 
rope. But with the construction of interoceanic rail- 
way lines, and the development of the interior regions, 
the natural movement will be for a greater volume of 
commerce to flow out from the Caribbean ports. Guate- 
mala and Costa Rica now have interoceanic lines, and 
Nicaragua will have them in the course of time. More- 
over, bananas, which are the most promising source of 
productive wealth, are grown in the lowlands of the 
Caribbean coast region. The hardwood forests, which 
are virtually unexploited, are situated in this region. It 
is also the seat of the rubber production. The sugar 
plantations are also most accessible on the Atlantic side. 

Aside from any question of political influence, this 
means that the control of Central American commerce 
rests with the United States. The Caribbean ports are 
natural feeders for New Orleans. This trend of the 
commerce is the economic sequel to the extended line of 
the national defense of the United States, which begins 
with the naval station at Guantanamo in Cuba, embraces 
St. Thomas, and follows the line to Panama. Carib- 
bean commerce and destiny merge. 

Much of the trade of the Central-American countries 



ECONOMIC DESTINY IN THE CARIBBEAN 243 

in the present day has resulted from investments made by 
companies in the United States. The commerce which 
flows across the Gulf to New Orleans and out through the 
Atlantic to New York and Boston is, therefore, a legiti- 
mate prize. The banana industry, which is the princi- 
pal source of productive wealth on the Atlantic, or Carib- 
bean, slope, is almost entirely the outcome of North 
American investments. Part of the railway-building 
which has helped to develop the interior regions and give 
their products an outlet to the coast has been carried on 
by capitalists in the United States, although in the be- 
ginning they borrowed the capital in England. The 
total investments approximate |50,000,000. So much of 
Central America is yet undeveloped that these invest- 
ments can be doubled and trebled advantageously to 
the investors, and to the manufacturers in the United 
States, among whom new business will be created. 

There is a broader aspect in which the future com- 
merce of the Caribbean area should be viewed. It re- 
lates to increased productiveness and increased con- 
sumption considered as a chapter in social progress. 

There is a favorite illustration of the productiveness 
of the Dakota prairies that has been obtained in the use 
of improved farm machinery. It is not necessary to re- 
peat the figures of the increased efficiency of a single 
man on a Dakota farm through these mechanical aids. 
This chapter in productiveness has many blank pages 
in the tropics. Yet the use of machinery has greater 
significance there, because of the inertia of white labor 
and the insufficiency of black labor. The farm tractor 
is just at the beginning of a period of added productive- 
ness to tropical lands. In the Caribbean area its field 
of utility is unrestricted. It is reasonable to expect that 



244 AMEEICAN FOREIGN TRADE 

within a few years there will be a notable increase in 
the quantities of the products of tropical agriculture. 
The consumers are already close at hand. They move 
in a mass southward closer to their markets.^ 

The hundred million inhabitants of the United States 
increase so rapidly that within a short period the added 
population will be able to absorb virtually all the prod- 
ucts of the Caribbean area. They will supply with 
manufactured articles the markets which supply them 
with food stuffs. Propinquity is the argument both 
ways. It is in this larger aspect, taken with the po- 
litical protectorates of the unstable countries, that the 
economic destiny of the Caribbean area should be viewed. 

The national policy of the United States coincides with 
the economic tendencies of the Caribbean area. A series 
of conventions or treaties affirms it. This is one of the 
few instances in which no break is shown, and no na- 
tional administration overturns the policies of its prede- 
cessor. The policy adopted by President Taft's admin- 
istration in relation to Central America as embodied in 

1 " The old theory of social progress assumed that national and race 
vitality could be found only to the north of the frost line, and that the 
nations to the south were bound to be defective and dependent. All 
this has changed in recent years through the increased control of dis- 
ease and the spread of better industrial conditions in southern regions. 
The center of civilization at the present time is 15° south of what 
it was a century ago. As good a civilization can now be maintained 
on the 25th degree of latitude as formerly on the 40th. 

" In addition to this, radical modifications in our diet have taken 
place by which southern foods have become important — so important 
that they are to-day as vital an element in our diet as are the older 
products of northern regions. Sugar, fruit, rice, bananas, and other 
tropical plants have now become an essential element in our food sup- 
ply, and only through further development of these products can a low 
cost of living be restored. At least one-third of the national diet 
should be obtained from regions south of the 2oth degree." — Professor 
Simon N. Patten, American Academy of Political and Social Science: 
Philadelphia, 1914. 



ECONOMIC DESTINY IN THE CAKIBBEAN 245 

the Nicaragua treaty was accepted and carried forward 
by President Wilson's administration. He had better 
success than his predecessor in securing ratification of 
the treaty, which insured the presence of American ma- 
rines in Nicaragua as a means of preventing domestic 
disorder. The marines are few in numbers, but their 
presence is a distinct moral force. It gives encourage- 
ment to the development of Nicaraguan resources, and 
it is an invitation for the investment of foreign capital. 

In Santo Domingo a virtual protectorate was estab- 
lished by President Wilson without the formality of a 
treaty or convention. Secretary Eoot had negotiated 
an agreement under which payment of the debt of Santo 
Domingo was provided for, and the possibility of Euro- 
pean intervention in the interest of bondholders was 
avoided. Under this convention the collection of the 
revenue was supervised by the United States, and a 
certain amount set aside for the payment of interest 
and the amortization of the principal. The arrangement 
worked so well that there was some apprehension lest 
the. debt be paid off too rapidly. 

The convention, however, did not provide for the dis- 
bursement of Santo Domingo's proportion of the cus- 
toms receipts or for the collection and disbursement of 
the internal revenue. Consequently, the control of these 
revenues became the ambition of the politicians, and rev- 
olution followed revolution. 

Secretary Bryan sought to overcome the temptation 
which the revenues offered by extending the scope of 
the Eoot convention so as to insure supervision of the 
internal revenue as well as the customs duties and the 
general financial management of the country. His ac- 
tion was resented as an invasion of the Dominican sov- 



246 AMERICAN FOREIGN TRADE 

ereignty. The revolutions continued until the Navy De- 
partment, under instructions from Washington, took 
forcible control of the Government. It decided who 
should be president, established a rigid press censorship, 
dictated tariff schedules, and exercised all the attributes 
of sovereignty. Gradually the conditions improved, and 
the naval commander allowed the press some privileges 
of criticism. The Dominicans have not become fully 
reconciled to the situation, but under the program of 
the national administration at Washington the people 
of the country may look forward to an era of security 
and of political stability, so that in time a new treaty 
may be negotiated establishing the definite bases of a 
protectorate. 

This was the course followed in Haiti. Washington 
grew weary of the relapses into bloody barbarism. The 
navy of the United States took control in one of the worst 
periods of anarchy. An administration and a congress 
were set up, backed by the marines. With this execu- 
tive and legislative creation a treaty was negotiated, 
under which the United States established a fiscal pro- 
tectorate over Haiti. Care was taken to avoid the sug- 
gestion of a political protectorate, though it was essen- 
tially such. This Haitian treaty is one of the most im- 
portant steps taken by President Wilson's administra- 
tion in affirming the paramount interests of the United 
States in the Caribbean.^ 

The benevolent coercion exercised in Santo Domingo 
and Haiti has been criticized, but its results are its jus- 
tification. When the time comes to negotiate a new 
treaty with Haiti, it is possible that the American ma- 
rines may be entirely withdrawn or reduced to a nominal 

1 For full text of the treaty see Appendix B. 



ECONOMIC DESTINY IN THE CARIBBEAN 247 

force, as in Nicaragua. But whether this becomes pos- 
sible in ten years or not, there will be the opportunity 
for peaceful Haitians to enjoy the fruits of their labor, 
and there will be added the enhanced commerce that 
comes from the development of natural resources. The 
reciprocal influence on trade with the United States 
will be definite, but it will not be because of any selfish 
acts. No special commercial privileges were sought by 
the United States. European countries share the bene- 
fits of stability in Haiti and Santo Domingo with the 
United States. Their capital and their commerce are 
protected. 

It is thus that the Caribbean area, being in the politi- 
cal sphei'e as well as in the economic sphere of the United 
States, will fulfil its chapter in manifest destiny. 



CHAPTER XVII 

CANADA^ THE NATION TO THE NORTH 

War debt and peace resources — Depth of national spirit — Relation 
of natural resources to trade — Fisheries and forests — Mineral wealth 
— Wheat-fields of the Northwest — Other crops — Reasons for daring 
railway ventures — Basis of industrial development — Iron and steel 
mills — Fiscal system and preferential tariff — Pre-war commerce with 
Europe — After-the-war prospects — Trade relations with the United 
States — Reasons for rejecting the reciprocity agreement — Close busi- 
ness intercourse in the future. 

CANADA came out of the war a nation of fewer 
than 9,000,000 people, with a debt of approxi- 
mately 11,950,000,000, or |220 for each inhabit- 
ant. This is almost nine per cent, of her total national 
wealth, which has been estimated at 117,000,000,000.^ 

Aware of her natural resources and of her undevel- 
oped wealth, Canada faces the future unflinchingly. Yet 
there are grave problems to be solved, some of them eco- 
nomic and some of them international. In the new era 
the dominion must adjust her development to the broad- 
ened participation in the affairs and the responsibilities 
of the British Empire, participation which she sought. 
This includes imperial preference. At the same time 
she must recognize the kindlier political relations and 
the trend to closer trade relations with the United States. 
The question suggests itself, Why speak of Canada 
as a nation, since the IN'orthern commonwealth has been 

1 Estimate of R. H. Coats, Dominion statistician, New York Sun, 
May 27, 1919. 

248 



CANADA, THE NATION TO THE NORTH 249 

among the foremost in demonstrating her loyalty to 
England as the mother country, has contributed unstint- 
edly of her means, and has made the sacrificial offering 
of her blood to maintain the empire of which she is a 
part? 

It is the national spirit of a people that makes a nation, 
and this national spirit, notwithstanding the super- 
loyalty to Great Britain, is the dominant trait of the 
Canadian people. It is the commonwealth conscious- 
ness. A few years ago the stranger traveling across the 
dominion from the Atlantic seaboard to the Pacific was 
struck by a seemingly trifling circumstance. In the 
Eastern provinces the hotels usually bore names histor- 
ically identified with British royalty. King's Hotel, 
Queen Hotel, the King Edward, the Victoria, the Wind- 
sor, were the common titles, and still are. In the great 
Northwest, amidst the billowy wheat-fields, there were 
other names. Usually they were of the province, such 
as the Alberta, the Saskatchewan; or they might be of 
some pioneer or successful business man whose public 
spirit found this means of expression. But they showed 
no knowledge of British royalty. 

The " opera-house " which European travelers were 
accustomed to remark as a characteristic of towns and 
villages in the United States was equally in evidence in 
the new Canadian towns, and the names showed no rev- 
erence for overseas traditions. It was the prominent 
citizen again or the local landmark. In the Eastern 
provinces, tradition; in the West, aspiration, achieve- 
ment. Yet Canada could not be considered a nation if 
the West actually was separated from the East in senti- 
ment. The only difference is that in the Eastern prov- 
inces the national spirit has not the same exuberance. 



250 AMERICAN FOEEIGN TRADE 

But in everything that affects Canada's interests it is 
scarcely less pronounced. 

England made her concession after the rebellion in 
1837, when she accepted the recommendation of Lord 
Durham and left the Canadians to govern themselves. 
When the provinces were merged into the confederation 
in 1867, the free play of the national spirit was manifest. 
England kept her hold by acquiescing not only in sub- 
stantial political independence, but also in complete fis- 
cal independence for the dominion. Canada makes her 
own tariffs and determines her own fiscal policy. It is 
this political liberty and this economic freedom of action 
which combine to stimulate the national spirit. At 
the basis of it all is the consciousness of destiny. This 
consciousness is grounded on the knowledge of the 
varied resources of the dominion, which make her both 
an agricultural and an industrial and commercial com- 
monwealth. 

The principal national asset of Canada is her agri- 
cultural resources ; but there are subsidiary assets, which 
include the forests, the mines, and the fisheries, and 
which form the basis of national industries. The re- 
lation that the natural resources bear to the trade of 
the dominion may be shown graphically by a tabular 
exhibit of domestic exports, which at the same time pre- 
sents a picture of the degree to which the war stimulated 
production activity. The year 1913 was one of indus- 
trial and commercial reaction approaching depression, 
yet as compared with the following year, it was pros- 
perous. The year 1916 was one of high pressure, muni- 
tion making, feverish activity. This is the comparative 
showing in that mid-period of the Great War, of total 
imports of merchandise and of exports by classes: 



CANADA, THE NATION TO THE NORTH 251 

Calendar Imports for Exports 6f 

year consumption Canadian produce 

1913 $659,064,000 $ 436,218,000 

1916 766,501,000 1,091,706,000 

Exports by classes 

1913 1916 

The mine $ 59,073,000 $ 81,281,000 

The fisheries 20,237,000 24,350,000 

The forest 42,533,000 55,225,000 

Animal products 51,613,000 117,910,000 

Agricultural products 208,643,000 364,606,000 

Manufactures 54,01 1,000 440,477,000 

Miscellaneous 109,000 7,858,000 



The increase in manufactured articles was the war 
phenomenon. It illustrates what the dominion con- 
tributed to the munitions of England and France, but 
it is the minor factor in the commerce of peace. The 
growth in animal and agricultural products is the nota- 
ble peace factor. 

The harvest of the seas is a contribution both to do- 
mestic consumption and to foreign trade. The sea-food 
resources are principally on the Atlantic coast, although 
the Pacific coast salmon fisheries are of consequence. 
The policy of the Dominion Government is to conserve 
and foment these resources by proper protection. This 
is possible with the salmon fisheries of the rivers of 
British Columbia, but the productive forces of fish life 
in the deep seas are beyond man's ability to regulate. 
The most that Canada hopes for is to prevent undue 
waste in drawing them from the ocean waters for the 
uses of commerce. 

The forests are one of the great permanent sources 
of national wealth to Canada, and a wise conservation 
policy, partly based on observation of the wasteful policy 
of the United States, insures their preservation to the 



252 AMERICAN FOREIGN TRADE 

dominion. The timber resources are mostly to be found 
in British Columbia, although the Maritime Provinces 
and Ontario and Quebec have considerable pine. The 
great timber wealth of these Eastern provinces, and 
particularly of Quebec, is in the spruce, or pulp-wood. 
The dependence of the printing press on Canadian pulp- 
wood is too well known to require explanation. Canada 
has utilized it in building up a news print industry of 
her own, but her chief industrial gain has been through 
requiring the logs to be manufactured into wood-pulp 
before the product can be exported. This is done by 
the provinces, and particularly by the Province of Que- 
bec, prohibiting the export of the logs. This policy has 
been the subject of remonstrance, protest, and partial 
adjustment on the part of the United States, but it has 
not resulted in Canada parting with her primary ma- 
terial of pulp-wood in the crude form. 

The mineral resources are widely distributed. They 
are most abundant in British Columbia, where are found 
gold and silver, coal, copper, lead, and some zinc. Cop- 
per is the most valuable industrial mineral. Southern 
Alberta has coal. Ontario has iron ore of a low grade 
along the northern shores of Lake Superior. It also 
has nickel, which is almost a world monopoly, since this 
mineral is produced in few places. Nova Scotia has 
coal, which is the basis of iron and steel industries. 

Agriculture is the enduring foundation of Canada's 
natural wealth.^ 

1 Computed at average local market prices, the values of the field 
crops in 1914 were as follows: wheat, $196,418,000; oats, $151,811,000; 
barley, $21,557,000; rye, $1,679,300; peas, $4,895,000; beans, $1,884,300; 
buckwheat, $6,213,000; mixed grains, $10,759,400; flax, $7,368,000; and 
com for husking, $9,808,000. For all field crops, including root and 
fodder crops, the total value amounted to $639,061,300; as compared 
with $552,771,500 in 1913, the increase of $86,289,800 being chiefly due 



CANADA, THE NATION TO THE NORTH 253 

The Eastern provinces produce a variety of export 
commodities and the dairy industry is an important fac- 
tor in the foreign trade. The flour-mills of Ontario and 
Quebec depend partly on the wheat-fields of those prov- 
inces. Their production is about 30,000,000 bushels an- 
nually, or hardly more than is needed for local consump- 
tion. 

The wheat-fields of the Northwest, which stretch as in 
a vision from Manitoba to the arctic circle, are the asset 
of the future as well as of the present. It is not given 
to human foresight accurately to judge their probable 
productiveness. The minimum estimate of Professor 
Mavor, the economist who in 1905 made an investigation 
for the British Board of Trade, was 300,000,000 bushels. 
The maximum estimate, which was 1,000,000,000 bushels, 
may prove a wild guess, but the demonstration can come 
only from experience. 

The possibilities of the great Mackenzie basin and the 
Peace River region are for the future to uncover. All 
that so far is known is that the wheat area gradually 
has extended beyond Manitoba, which a generation ago 
was thought to be its limit. The farther north cultiva- 
tion extends, the more Canada becomes a one-crop 
country, with all the uncertainties that result from 
dependence on one crop. But out of this also comes 
the average wheat yield that may be expected through 
a period of years, and a country's agricultural wealth 
is thus to be measured rather than by a single bumper 
year or by an unusual succession of bad crops. An aver- 
age annual crop of 250,000,000 bushels of wheat in the 

to the enhancement of prices, which has thus more than counterbal- 
anced the low yields of grain caused by the drought. Report of John 
G. Foster, American Consul-General at Ottawa, 1915. 



254 AMEEICAN FOREIGN TRADE 

Canadian Northwest is not an exaggerated estimate. 

The prospect of the live-stock industry is a mooted 
one, but climate is an intractable agent. More feed is 
required where the winters are longest. That is axio- 
matic. Moreover, mixed farming, and even wheat-grow- 
ing, offer better returns in the Alberta region, where 
the mild chinook winds from the Japanese current en- 
couraged stock-raising until it was found more profitable 
to devote the land to wheat and to general farming. 
Hog-raising is possible only on a limited scale in the 
Eastern provinces, where corn can be grown. 

Climate bars corn, or maize, in the great Northwest. 
During the debate on the Taft Reciprocity Agreement, 
some congressmen of the old-school saw the ruin of the 
western farmer in the United States because Canadian 
corn was to be admitted free. Apparently, they thought 
that the Canadian maize-fields would extend up to the 
arctic circle. Corn, of course, can be raised in the ex- 
treme Northwest, just as can bananas or oranges; but 
only in hothouses. It can hardly be regarded as an 
element of Canadian agricultural wealth. Mixed farm- 
ing is the feature of agriculture in British Columbia, 
while orcharding is a very prosperous industry; but 
in the wildest sense the live-stock industry and mixed 
farming are to be considered as factors in domestic pro- 
duction and consumption rather than in the Dominion's 
foreign trade. 

Canada's national policy has been an evolution from 
her natural resources. The first need was of transpor- 
tation. Consequently, came the splendid system of 
canals leading through the Great Lakes, so that the 
wheat found an outlet to the Atlantic. The railways 
were at first subsidiary. Then came the grand dream 



CANADA, THE NATION TO THE NORTH 255 

of a transcontinental line. Sir John Macdonald bullied 
and bribed the Canadian Pacific subsidy through the 
Dominion Parliament in the face of strenuous and en- 
tirely sincere opposition because of supposed natural 
obstacles. At that time the Northern Pacific had not 
been constructed, and the prophets in the United States 
who foresaw that climatic conditions were an insuper- 
able obstacle to it had their brother prophets in Ottawa. 

The Canadian Pacific was followed twenty years later 
by the project of the Grand Trunk Pacific hundreds of 
miles farther north, with its terminal at Prince Rupert, 
and then by the Canada Northern, still farther north. 
The war found these projects overwhelmed with financial 
burdens. The war leaves them further burdens on the 
hands of the Government. Whether it was actually 
necessary to the national development to build the lines 
so far North is in the lap of the future to determine. 
The same may be said of the line to the Hudson 
Bay. Its construction is a simple engineering proposi- 
tion, and its operation, under unfavorable climatic con- 
ditions, is not impracticable; but the problem of 
warehousing the wheat for a year on the shores of 
Hudson Bay, and in the following season getting it out 
through James Bay to Liverpool, is a serious one. 

If these vast railway projects fail to fulfil their pur- 
poses, the statesmen responsible for them will be charged 
with recklessness, and will be held responsible for a 
losing investment of hundreds of millions of dollars. 
But they will not be responsible. They were simply 
men of vision who responded to the impulse of the com- 
monwealth. They would not be statesmen had they not 
undertaken the projects, for actual experiment was the 
only means of determining the feasibility of the enter- 



256 AMEKICAN FOREIGN TRADE 

prises. The national spirit of Canada would not be 
satisfied with anything less than a try-out, and it is the 
Canadian nation which in reality is back of them. 

The industrial development of Canada has been a 
logical one, though stimulated by artificial means. Pos- 
sessing the mineral resources that she does, the adoption 
of the protective policy, which essentially is a national- 
istic policy, was inevitable. The raw material in the 
form of water-power was a contributing cause. 

The iron and steel industry is situated in two regions. 
One of these is the Cape Breton district of Nova Scotia, 
where there is abundance of coal. The iron ore is ob- 
tained from the Wabana Range of Belle Isle, Newfound- 
land, and also from Spain and Sweden. The favorable 
situation at tidewater for assembling the raw material 
was declared to be ideal for cheap pig-iron production, 
and the development of enormous plants with world 
markets was predicted in consequence. An industry of 
some importance has been built up, but the early dreams 
have not been realized. 

The establishment of iron and steel mills at the Sault 
Sainte Marie was largely a matter of geography. There 
was some local ore of low grade, but the chief consider- 
ation was that high-grade ore could be brought cheaply 
across Lake Superior from the Mesaba Range, and coal 
be obtained from Lake Erie ports, while there was the 
further consideration that the manufacture of steel rails 
at this point had distinct advantages for railway con- 
struction through the Northwest. The iron and steel 
industry, in its various forms, and particularly in the 
production of pig-iron, was encouraged by heavy sub- 
sidies and bounties both from the Dominion and from the 
Provincial governments. 



CANADA, THE NATION TO THE NORTH 257 

How far the general industrial development was 
hastened, if at all, by the failure to secure reciprocity 
with the United States necessarily must always remain 
a matter of opinion. Under the policy adopted by Can- 
ada many industries in the United States were com- 
pelled to establish branch factories in the dominion. 
Some of these branch factories undoubtedly would have 
been provided for convenience in assembling raw ma- 
terial and for distribution of the finished products. 
Others unquestionably have been established because 
the fiscal policy of the Government forced it. Without 
regard to their relation to parent industries in the 
United States they are Canadian industries. 

Canada's commercial relations are of a mixed char- 
acter. They are based on the pre-war European con- 
struction of the favored nation treatment, on special 
trade agreements, and on a triple tariff system. The 
principle of preferential rates was instituted by the 
Tariff of 1907. As provided for by that act and in sub- 
sequent legislation, there are four separate schedules, 
the general, the preferential, the surtax, and the treaty 
rates. The preferential is reserved for products of the 
United Kingdom and certain British possessions ; treaty 
rates are comprised in the intermediate, which repre- 
sents the concessions that the Government makes to 
other countries in return for reciprocal concessions ; the 
general tariff is applicable to imports from countries 
to which neither of the other schedules has been ap- 
plied. The surtax is the fighting rate added to the gen- 
eral tariff. 

The British preferential schedule originally repre- 
sented a preference of approximately twenty per cent, 
over the intermediate rates, but it was enlarged until it 



258 AMEEICAN FOREIGN TRADE 

represented on most commodities an advantage equiva- 
lent to thirty-three per cent. In the war-revenue leg- 
islation the relative advantage of the British preferen- 
tial was increased. Duties applying to other countries, 
principally the United States, were advanced seven and 
one-half per cent., and to the United Kingdom two and 
one-half per cent. 

This fiscal legislation was supplemented by what was 
known as the anti-dumping clause. This was an ingeni- 
ous provision for giving further protection to Canadian 
manufacturers by preventing manufacturers in other 
countries selling at lower prices in the dominion than 
in their home market. It was aimed chiefly at the 
United States. 

Under this fiscal arrangement, which was in effect 
when the Great War began, according to the Canadian 
import statistics the United States was selling in the 
dominion market goods to the value approximately of 
1411,000,000; the United Kingdom, $132,000,000; 
France, fl4,250,000. Canada, whose chief export com- 
modities were agricultural products, was sending goods 
to the United Kingdom to the value of |222,300,000 ; 
to the United States, |200,500,000 ; and to France, $3,- 
800,000. 

Canada's trade relations with the Allied countries 
will not be radically changed under the readjustment 
of the new era. They are likely to continue on the basis 
of the present intermediate tariff and treaty rates. 

France is the only one of the Allied European coun- 
tries that has a large market for her products in Can- 
ada, and these are specialties. Should she receive 
a further reduction in duties, it might enable her to 
compete better with Great Britain in a few lines of 



CANADA, THE NATION TO THE NORTH 259 

light manufacturing. Canada, on her part, would ex- 
pect entry into the French market on favorable condi- 
tions. The Franco-Canadian trade treaty of 1911, with 
its curtailment of the British advantage both in Canada 
and in France, was a piece of very delicate trade di- 
plomacy ; but, true to her policy of non-interference with 
the economic policies of the colonies, England 
acquiesced. 

With old Russia Canada had slight trade. She im- 
ported few Russian products, but she would like the 
Russian market for agricultural machinery on pref- 
erential terms. Russia could not give her greater ad- 
vantages than were conceded to the British Imperial 
Government, and was not in a position to discriminate 
against the United States. 

Relations with the enemy countries mean Germany 
and Austria-Hungary. Turkey and Bulgaria are unim- 
portant. That there will be a continued discrimination 
against the products of the former Central powers is 
foreshadowed, but since th«re is little market in Canada 
for Austrian goods, what is left of that empire will not 
be seriously disturbed. Germany, for several years, 
from 1903 to 1910, was subjected to the surtax, and she 
denied Canada her conventional rates. Both countries 
felt the inconvenience, and an arrangement was made 
under which certain German conventional rates were 
extended to Canada, and the surtax was withdrawn. 
The imports from Germany in the fiscal year 1914 were 
114,500,000, and the exports |4,400,000. In the future 
Germany's chief concern will be over the attempt to de- 
prive her of raw materials for her industries. 

The trade relations of the dominion with the United 
States are a chapter in themselves. Geography has de- 



260 AMEKICAN FOREIGN TRADE 

creed that they be reciprocal. This was the aspiration 
of Canadian statesmen long before the confederation 
was formed. Reciprocity was established by the Elgin- 
Marcy Treaty of 1854, but the products whose exchange 
was provided for in that arrangement were natural ones. 
This treaty worked more to the direct financial advan- 
tage of Canada than of the United States, yet the 
disproportion was not serious enough to cause its abroga- 
tion by the United States in 1867, had not the resent- 
ment in the North over the refuge which the dominion 
had afforded to the partizans of the South been worked 
upon. 

After the abrogation of the Elgin-Marcy Treaty there 
followed the period of pilgrimages of Canadian states- 
men to Washington, the projects for commercial union, 
for complete free trade, and for reciprocity under vari- 
ous forms, which were ineffectually supported by Ben- 
jamin Butterworth, Robert R. Hitt, and other far-sighted 
members of Congress. The continued rebuffs chilled 
the Canadian advocates of reciprocity, and the pilgrim- 
ages closed. When the Reciprocity Agreement of 1911 
was negotiated by President Taft with the government 
of Sir Wilfrid Laurier, circumstances in the dominion 
had greatly changed. The agreement was negotiated 
in the spirit of mutual benefits. Canadian agricultural 
products received important remissions of duty into the 
United States, while there were similar remissions on 
the products of the United States into Canada. Con- 
trary to a widely held opinion, Canada offered, and still 
offers, an excellent market for surplus farm produce of 
the States. 

The motives which caused Canada to reject the agree- 
ment after it had been enacted into law by the Congress 



CANADA, THE NATION TO THE NORTH 261 

of the United States were her own affair and not to 
be questioned by a friendly government. Nevertheless, 
in passing, some of the reasons which influenced the 
dominion electorate are worth analyzing. One, un- 
doubtedly, w^as purely political. The Liberal party had 
been in office fourteen years. Like all political organi- 
zations which have a continuous lease of power, disaf- 
fection had grown up inside the ranks. Ambitious 
younger men found that the path to preferment was 
closed to them by their elders. Naturally they sought 
an issue which would enable them to upset the existing 
leadership, and they found it in opposing reciprocity. 

There was also the appeal to political passion. On 
its surface this was a manifestation of loyalty to the 
mother country. Deeper, it was the assertion of the 
spirit of Canadian nationality. The specter of annex- 
ation to the United States was invoked both by the ultra- 
loyalists and by the nationalists. The utterances of 
loose-thinking and careless-speaking public men in the 
United States contributed to stimulate this feeling of 
nationality. They spoke of annexation and reciprocity 
as if reciprocity, which was purely an economic question, 
were a political one. In the appeal to passion and 
prejudice by plausible politicians it was humorously re- 
marked that some of the ultra-loyalists in the Eastern 
provinces thought they were getting even for the perse- 
cutions of their ancestors, the Loyalists of the American 
Revolution, who took refuge in Canada. 

But the most potent consideration was material and 
practical. Canadian manufacturers were alarmed at 
the prospect of a broader reciprocity in manufactured 
articles. Powerful transportation companies, which 
feared that the bulk of the wheat crop of the Northwest 



262 AMERICAN FOREIGN TRADE 

would be carried across the line to American flour-mills, 
and that they would lose considerable traffic, vigorously- 
opposed the agreement.^ 

Equally powerful financial influences were involved 
with the transportation interests. 

Moreover, a perfectly good argument was put forward 
by the opponents of reciprocity. This was based on 
political portents in the United States. The signs of 
a reaction were fairly clear, and it was a reasonable 
deduction that the party would soon come into power 
which would reduce duties without regard to the action 
of other countries. This argument was justified by 
events. Under the tariff law of 1913 the dominion got 
for nothing all that she made concessions to obtain in 
1911. 

The rejection of the Reciprocity Agreement by Canada 
caused no resentment in the United States. It passed 
almost without comment. It cannot be assumed, how- 
ever, that Canada will continue to receive all the benefits 
of the market of the United States and give nothing in 
return. The repeal of the Reciprocity Act will be the 
first step toward equalizing the benefits.^ 

During the very dull times in the iron and steel in- 
dustry in 1914 a Western railway bought rails of the 
Canadian mills. It could afford to do this because there 
was no duty on the entry of these rails into the United 
States, but the mills which would have liked to supply 

1 A provision for the free admission of wheat, similar to that in the 
Reciprocity Agreement, was contained in the tariff law of 1913, but was 
ignored by the Dominion Government until April, 1917, when the United 
States had entered the Great War on the side of the Allies. An order 
in council was then passed which insured free wheat between the two 
countries. 

2 As this book goes to press a bill to repeal the Act is pending in 
Congress. 



CANADA, THE NATION OF THE NORTH 263 

the Canadian railways were kept out by means of the 
dominion duty, in addition to the stringent anti-dump- 
ing provisions. This is a condition of non-reciprocity 
which is not likely to be acquiesced in when dull times 
come again in the steel trade. The same observation 
applies to agricultural implements and in larger 
measure to agricultural products. 

Imperial preference presents vital questions to Can- 
ada. Colonial preference was not at bottom an eco- 
nomic policy. It was granted by the dominion in order 
to secure recognition in the affairs of th-e empire as 
administered from London. When this recognition was 
not granted, the policy was continued, but with lessened 
enthusiasm. Now that the recognition is complete, sen- 
timent will be very strong in favor of tariff discrimina- 
tions. This, however, will not be at the expense of Can- 
ada. The effort will be to extend them at the expense 
of the United States. This was the policy followed dur- 
ing the war in the progressive-taxation measures. Yet 
the trade of the United States grew. During hostilities 
the imports from the United States ranged from seventy- 
five per cent, up to eighty per cent, of the total. That 
is the normal measure of the business. The tendency is 
strengthened by the control of exchange on the part of 
New York, and by the huge volume of Canadian securi- 
ties absorbed during the war. Provincial and munici- 
pal loans were taken liberally at the outset, and there 
was no cessation in the movement. London had ceased 
to be a reservoir of capital for Canada, and imperial 
preference cannot alter this condition. 

Canada's political relations with the United States 
are now of a most friendly character. Many causes 
of irritation, some of them a century old, were removed 



264 AMERICAN FOREIGN TRADE 

when Elihu Root was secretary of state. The settlement 
of the Alaska boundary controversy, the Atlantic fish- 
eries dispute, and numerous other controversial ques- 
tions by Mr. Root is a luminous chapter in American 
diplomacy. It formed an enduring basis of friendship 
and of cooperation. It opened the way to the adjust- 
ment of trade relations on a normal basis without preju- 
dice or resentment on either side. The cooperation of 
the United States in the Great War has immensely 
strengthened the friendly feeling. 

Propinquity has decreed that Canada shall buy largely 
of the United States. It has made the dominion in 
effect a domestic market, notwithstanding the political 
separation and the fiscal barrier of a tariff. Equally, 
propinquity has made the United States a domestic 
market for Canadian products. Commerce with the 
United States is mutually the line of least resistance. 
Geography argues effectively against undue extension 
of the imperial interests in economic conditions which 
are the basis of trade relations. In the adjustment of 
these trade relations Canada's status as a nation is more 
firmly than ever established, because the Imperial Gov- 
ernment is certain to acquiesce in whatever the common- 
wealth overseas determines. The nation to the north 
is the mistress of her own economic, as of her own politi- 
cal, destiny. But she is destined to be the neighbor 
market for a billion dollars worth of products from the 
United States. 



CHAPTER XVIII 

JAPAN AND MUTUAL MARKETS 

New riches — Herbert Spencer's rejected advice — Gains from Western 
civilization — What the island power is — Sparse agricultural re- 
sources — Nationalization of raw materials — Political evolution — 
Winning of economic independence — Fiscal policy — War prosperity — 
Fundamentals of future commerce — Trade relations with the United 
States — The Knox Treaty — Questions of the Pacific. 

JAPAN, emergent from the Great War, is newly 
rich, aggressive, and progressive. Her sacrifices, 
from the nature of her geographical situation, re- 
mote from the scene of hostilities, were few. Her legiti- 
mate gains were many. Industrially, financially, and 
commercially she is immeasurably strengthened. Her 
national debts in 1919 were less than they were in 1914. 
She was a creditor for loans advanced to her allies. Her 
bank deposits had increased in the five-year period fifty 
per cent. Her foreign trade, measured both in exports 
and in imports, had gained more than one hundred per 
cent. It was approximately |680,000,000 in 1914. It 
exceeded |1,600,000,000 in 1919.^ This is the nation 
that in the new era is to be recognized in a two-fold 
aspect — as a single country and as the controlling 
Asiatic power. 

Herbert Spencer's advice, proffered in that curious 
letter to Baron Kaneko in 1892, for Japan to remain iso- 
lated from Western civilization, reads strangely now. 
The philosopher would have had Japan maintain the 

1" Economic and Financial Annual of Japan." Tokyo, 1918. 

265 



266 AMERICAN FOREIGN TRADE 

civilization of the Orient as against the Occident, by 
keeping foreigners at arm's-length, by preventing them 
from OTvning land, by denying them commercial privi- 
leges, by prohibiting them working the mines, and by 
interdicting intermarriage. The parts of the letter re- 
lating to inter-marriage are not pertinent to his views 
relating to commercial intercourse and may be omitted. 
His objection to permitting foreigners to work the mines 
was that quarrels probably would arise, and that the 
Western governments would send armed forces to en- 
force the claims of their nationals. On the subject of 
isolation as a policy his words were : 

The Japanese policy should, I think, be that of keeping 
Americans and Europeans as much as possible at arm's length. 
In presence of the more powerful races your position is one 
of chronic danger, and you should take every precaution to 
give as little foothold as possible to foreigners. 

It seems to me that the only forms of intercourse which 
you may with advantage permit, are those which are indis- 
pensable for the exchange of commodities — importation and 
exportation of physical and mental products. No further 
privileges should be allowed to people of other races, and 
especially to people of the more powerful races, than is ab- 
solutely needful for the achievement of these ends. Appar- 
ently you are proposing by revision of the treaty with the 
Powers of Europe and America '* to open the whole empire 
to foreigners and foreign capital." I regret this as a fatal 
policy. If you wish to see what is likely to happen, study 
the history of India. Once let one of the more powerful 
races gain a point d'appui and there wiU inevitably in course 
of time grow up an aggressive policy which will lead to col- 
lisions with the Japanese ; these collisions will be represented 
as attacks by the Japanese which must be avenged as the case 
may be ; a portion of territory will be seized and required to 
be made over as a foreign settlement; and from this there 
wiU grow eventually subjugation of the entire Japanese em- 



JAPAN AND MUTUAL MAEKETS 267 

pire. I believe that you will have great difficulty in avoid- 
ing this fate in any case, but you will make the process easy 
if you allow of any privileges to foreigners beyond those 
which I have indicated. 

Foreigners should not hold land. 

In pursuance of the advice thus generally indicated, I 
should say, that there should be, not only a prohibition of 
foreign persons to hold property in land, but also a refusal 
to give them leases, and a permission only to reside as an- 
nual tenants. 

In pursuance of the policy I have indicated, you ought 
also to keep the coasting trade in your own hands and for- 
bid foreigners to engage in it. This coasting trade is clearly 
not included in the requirement I have indicated as the sole 
one to be recognized — a requirement to facilitate exporta- 
tion and importation of commodities. The distribution of 
commodities brought to Japan from other places may be 
properly left to the Japanese themselves, and should be 
denied to foreigners, for the reason that again the various 
transactions involved would become so many doors open to 
quarrels and resulting aggressions. 

The import of the philosopher's advice was to reverse 
the policy that had been initiated when Commodore 
Perry opened the door to Western civilization, and 
Japan welcomed it. Had his advice been followed in 
the sense meant of Japan isolating herself from world 
affairs, she would have become the secluded power in- 
stead of the dominant power of Asia. Japan rejected 
it, and placed herself on an eqnal footing with Western 
powers ; yet it is to be observed that she does not permit 
foreigners to own land, she keeps the mines under gov- 
ernment control, and, without denying foreigners par- 
ticipation in the coasting trade, she keeps the mastery 
of it. 

What is this nation which looms so large in world 
trade? 



268 AMERICAN FOREIGN TRADE 

It is an island power, poor in natural resources, with 
an area of 260,000 square miles, or about that of the 
State of Texas, with a population of 57,000,000 inhabi- 
tants of Japan proper, with 17,000,000 Koreans, and 
3,600,000 Formosans, thus forming an economic group 
of more than 77,000,000 people. It is a group in which 
the birth-rate outstrips the death-rate, and the calcula- 
tion of natural increase must be given full play in its 
economic and political development. 

The raw resources are sparse. Rice is the chief agri- 
cultural product, and is also the principal food, though 
large quantities of it are exported. Wheat is produced 
insufficiently for a population a small proportion of 
which can afford a wheat diet. Barley, potatoes, and 
rye are also insufficient crops. There is some tobacco 
and soya-beans for export. Domestic animals are very 
scarce, and the number of sheep is not equal to those 
on a small sheep-ranch in Wyoming. Fish is abundant, 
and is a staple food, second only to rice. Sugar is pro- 
duced in Formosa, and is exported, although there is 
not enough of it to supply the needs of more than a 
fraction of 77,000,000 people were they accustomed to 
sugar. Tobacco is raised chiefly for export. 

Tea is the principal agricultural crop, and is pro- 
duced far in excess of the domestic demand. Silk cul- 
ture is the most productive native industry. A native 
straw is grown which provides material for plaiting 
and for hats. The native clays have the qualities out 
of which fine porcelain is developed, and they form the 
basis of a profitable industry. 

These are the primary resources of a people whose 
political progress has been simultaneous with their in- 
dustrial development. They are the people whose silk 



JAPAN AND MUTUAL MARKETS 269 

of their own raising gave them the key to a phenomenally 
swift transition from hand labor to machinery. It was 
they who, showing this remarkable facility, established 
a textile industry for which the raw wool and the raw 
cotton had to be brought from other countries. It was 
they who developed a ship-building industry of their 
own in keeping with their maritime situation, and who 
have established iron and steel industries that are basic, 
although not yet greatly advanced. 

In this industrial development they began with a 
policy of nationalization of the raw materials that lay 
beneath the surface of the soil, and followed it with 
the nationalization of .the systems of transportation, 
the railways being brought completely under govern- 
ment control, and the steamship lines, by means of sub- 
sidies, being held in a condition of subjection equivalent 
to making them government steamship lines. In the 
development of the domestic industries the protectionist 
policy has been accepted and applied. 

The political evolution, which has been contemporane- 
ous with this industrial development, is a well-known 
chapter. Only its outlines need be given, and that may 
be done very briefly. 

The Christian powers, after Commodore Perry pried 
open the door, were not ready to recognize Japan as 
a fully civilized power. In the treaties of 1858 with 
Great Britain and other countries she parted with two 
essential attributes of sovereignty. Her judicial auton- 
omy was restricted by the functioning of the foreign 
courts with their extra-territorial jurisdiction. Her 
economic independence was smothered under the fixed 
tariff rates. When Japan began to emerge from the 
old order, her first effort was to regain her political in- 



270 AMERICAN FOREIGN TRADE 

dependence. This was conceded by the United States 
in the treaty of 1878, but it was non-effective because 
the other powers would not agree to it. The surrender 
of extra-territorial authority and of customs control was 
not won from the European powers until a series of 
treaties were negotiated in the years from 1894 to 1899. 
Her right to control her own fiscal system having been 
acknowledged, Japan laid the foundation of her com- 
mercial intercourse with the rest of the world by the 
tariff treaties of 1911. 

A rapid survey will show how native industry was 
developing and international commerce expanding under 
these trade-treaties. In the tariff of 1911 the import 
duties were chiefly specific. Export duties had been 
abolished a dozen years earlier. Under the new 
schedules, raw materials were for the most part ad- 
mitted free, and semi-raw materials were given very 
light imposts. Manufactured goods paid rates rang- 
ing from fifteen per cent, to forty per cent., accord- 
ing to the classification, and luxuries paid fifty per 
cent. 

Japan exported raw silk and silk products, copper 
in semi-finished form, gold, tea, rice, porcelains, and 
plaited straws, principally to Europe and the United 
States. 

She exported, mainly to China, cotton goods and 
sugar. She also exported small quantities of marine 
products, oils and fats, and some metal manufactures. 
Her principal imports were grains and flour and sugar 
among food stuffs, drugs and chemicals and oils and 
waxes for domestic consumption. Cotton to feed her 
mills was the most important commodity. There was 
also raw wool. Machines, machinery, and miscellaneous 



JAPAN AND MUTUAL MAEKETS 271 

iron and steel products furnished the category of manu- 
factured products. 

The period just preceding the outbreak of the Great 
War found Japan in the valley of depression. There 
was an adverse balance of trade. Industries were 
greatly depressed. Commercial movement was limited, 
while finances were in a bad state, and the interest 
charges on the national debt which had been incurred 
in the war with Russia was an oppressive burden that 
threatened to smother the industrial life of the people. 
These unfavorable circumstances were attributes prin- 
cipally following the inflated trade and finances result- 
ing from the Russo-Japanese War. 

In the first stage of the Great War the depression 
was accentuated by the slump in the exports of raw 
silk, and the other interferences with the commodities 
of international commerce. This condition did not last 
long. England knew Japan's industrial capacity. Mu- 
nitions orders rolled in. The shipyards became phe- 
nomenally active. Vast profits poured into the country 
from the merchant marine. These profits were rein- 
vested in chemical and industrial factories and machine 
shops which provided manufactures that could not be ob- 
tained from Europe because the factories there were too 
busy making raw materials. Some machinery, however, 
it was found could be obtained, and the United States 
was the source of supply. In the year before the war 
iron for the shipbuilding and metals industry had been 
obtained almost exclusively from Great Britain and 
Germany. England was able to supply some of this 
material still, but the United States was turned to, and 
until it entered the war helped fill the gap. In the 
supply of machinery the same thing happened. 



272 AMEKICA]^ FOREIGN TRADE 

Japan continued to receive raw cotton from tlie 
United States without interruption until the armistice 
was signed. The ending of hostilities found the foreign 
trade of both countries visibly increased. Its funda- 
mentals have not changed during the period of hostili- 
ties. They are the fundamentals of future trade, and 
are therefore worth analyzing. In the year before the 
war, in addition to raw cotton, Japan took from the 
United States some flour, considerable kerosene, some 
rails and locomotives, bar iron, plates, machinery, and 
engines and construction materials generally. 

The United States took from Japan raw silk to the 
amount of two-thirds of the total exports of this product. 
During the war the figures mounted to eighty-six per 
cent. It also took tea, and the variety of porcelains 
for which Japan is noted, along with straw plaits, mats, 
and the like. These commodities may be said to be the 
principal products of exchange in the future. The two 
countries are ideally situated for mutual commerce. 
The United States can absorb large quantities of 
Japanese products, because they are commodities which 
it does not produce itself. Japan, on her part, not- 
withstanding her growth as an industrial nation, is in 
a position to absorb increasing quantities of machinery 
and iron and steel products, especially for shipbuilding, 
as well as raw cotton for her textile mills. That the bal- 
ance of trade as measured in values runs somewhat in 
Japan's favor does not prejudice the desirability of the 
United States maintaining and fomenting this inter- 
course. It is a commerce that will mount rapidly to a 
quarter of a billion dollars annually even with decreas- 
ing values. After that the growth may be more gradual, 
but none the less certain. 



JAPAN AND MUTUAL MARKETS 273 

Trade relations between Japan and the United States 
may be said to rest on the Knox Treaty of 1911. Its 
provisions concerning commerce embody the favored- 
nation treaty under the American construction. They 
are found in two articles. 

Article V. The import duties on articles, the produce or 
manufacture of the territories of one of the High Contract- 
ing Parties, upon importation into the territory of the other, 
shall henceforth be regulated either by treaty between the 
two countries or by the internal legislation of each. 

Neither Contracting Parties shall impose any other or 
higher duties or charges on the exportation of any article 
to the territories of the other than are or may be payable 
on the exportation of the like article to any other foreign 
country. 

Nor shall any prohibition be imposed by either country 
on the importation or exportation of any article from or to 
the territories of the other which shall not equally extend to 
the like article imported from or exported to any other coun- 
try. The last provision is not, however, applicable to pro- 
hibitions or restrictions maintained or imposed as sanitary 
measures or for purposes of protecting animals and useful 
plants. 

Article XIV. Except as otherwise expressly provided in 
this treaty, the High Contracting Parties agree that, in all 
that concerns commerce and navigation, and privilege, favor 
or immunity which either Contracting Party has actually 
granted, or may hereafter grant, to the citizens or subjects 
of any other State shall be extended to the citizens or sub- 
jects of the other Contracting Party gratuitously, if the con- 
cession in favor of that other State shall have been gratuitous, 
and on the same or equivalent conditions, if the concession 
shall have been conditional. 

A protocol in the treaty provides for the continuance 
of commercial relations on the preexisting basis until 
the conclusion of a treaty relating to tariff. From this 



274 AMERICAN FOEEIGN TRADE 

it is evident that a special convention was in mind as 
a basis for trade relations. Such a convention would 
be a reciprocal one in which there would be little diffi- 
culty in making mutual concessions. The question is 
how far Japan would go in making genuine concessions 
to the products of the United States. 

The Anglo-Japanese Treaty of 1911 did not discrimi- 
nate against American products. Under the favored-na- 
tion clause the United States got similar treatment for 
its products; but since the Japanese tariff was framed 
chiefly with a view to making concessions to English 
goods, there was little actual advantage to this country. 
When it comes to negotiating a trade treaty with Japan, 
the United States will be justified in insisting on con- 
cessions that are of real benefit to its products. The 
balance of trade will be likely to continue in favor of 
Japan under any commercial arrangement that may be 
effected, since the United States has greater powers of 
absorbing Japanese products than Japan has of absorb- 
ing the products of the United States. 

The increasing importance of the United States in 
the trade of Japan has been set forth in an authoritative 
official manner: 

Twenty years have brought about striking changes in the 
distribution of Japan's exports and imports among the in- 
dividual countries which have shared in the total trade. In 
early years Great Britain was the most important source of 
Japan's imports, but she took only a small share of Japan's 
exports; the United States took as large a proportion of 
Japan's exports as Great Britain contributed to the imports, 
but sent to Japan in return only about two-thirds the amount 
of imports supplied to Great Britain. By 1913 Great Britain 
and the United States were contributiag almost equally to 
Japan's imports, but the United States was taking of Japan's 



JAPAN AND MUTUAL MARKETS 275 

exports almost six times as much as the share taken by Great 
Britain. 

The United States has been for a long period the most im- 
portant market for Japanese exports. In one year only since 
1897 have the Japanese exports to the United States been ex- 
ceeded by those to any other country : In 1905, as a result of 
exceptional conditions arising from the Russo-Japanese War 
then in progress, the exports to China exceeded those to the 
United States. In all other years since 1897 the exports to 
the United States have been considerably greater than those 
to any other country, the exports to China generally being 
next in importance. In 1913 the figures were as follows: 
Exports to all countries, 632,460,000 yen; United States, 
184,000,000 yen; China, 154,000,000 yen; France, 60,000,000 
yen; Great Britain, 32,800,000 yen; British India, 29,800,000 
yen; Italy, 29,400,000 yen. In that year the United States 
took 29.2 per cent of the total Japanese exports, as compared 
with 24.3 per cent to China, and 19.3 per cent to France, 
Great Britain and Italy combined. 

A review of the export trade of Japan during the last 20 
years shows that at no time has the United States taken less 
than 25 per cent of the Japanese exports, while from 1907 to 
1916 the exports to the United States averaged 31.1 per cent 
of the total exports. The highest percentage ever taken by 
China was 27.7 in 1906, during the Russo-Japanese War; in 
other years the percentage of the total exports shipped to 
China was considerably less. The British maximum was 12.6 
per cent, in 1917 ; the greatest proportion ever sent to British 
India was 6.3 per cent, in 1916. In most years the exports 
to the United States exceeded those to any other three coun- 
tries combined. Of Japan's greatly increased exports in 
1916 and 1917, 30.2 and 29.8 per cent, respectively, were 
sent to the United States. The United States has for a 
long time been and remains the best market for Japan's ex- 
ports.^ 

The review of their actual trade shows how much 

1" Japan: Trade During the War." United States Tariff Commis- 
Bion: Washington, 1919. 



276 AMERICAN FOREIGN TRADE 

Japan and the United States have in common. The 
resume of the trade relations demonstrates that these 
are easy of adjustment. Every sign, therefore, points 
to a beneficial mutual commerce between Japan and 
the United States, since the markets are literally mutual. 
This normal trade is not, however, the end of all. There 
is other trade in the Orient, on the Asiatic mainland, 
which is of immeasurable concern both to Japan and to 
the United States. It relates principally to China, but 
it embraces virtually the whole question of the Pacific, 
whether the mastery of the Pacific, the supremacy of 
the Pacific, or the sharing of the Pacific is in mind. 



CHAPTER XIX 

CHINA AND THE COMMERCE OF THE PACIFIC 

Economic definition — Mineral resources — Nature of foreign trade — 
Small volume — Relations with other countries — John Hay's open door 
— Root-Takahira Declaration — Lansing-Ishii Agreement — China's own 
statement — Japan's economic overlordship — Outcome at peace confer- 
ence — Bankers' loans — Influence on material development — Fiscal pol- 
icy — Economic independence the acid test for the great powers — 
United States as an interested friend. 

WHAT is China? 
The question must be answered variously. 
Historically, she is a static nation, with 
occasional signs of dynamic forces working upward from 
beneath the ossified crust of her ancient civilization. 
Geographically, viewed as China proper, with Man- 
churia included, and with Mongolia, Tibet, and Turkes- 
tan excluded, she is an area of a million nine hundred 
thousand square miles, with every variety of climate, 
and with three hundred and fifty million inhabitants 
settled over that area. Industrially, through her min- 
eral resources, she is the vast reserve of the Asiatic 
continent. Fiscally, she is a medley. Internationally, 
she is a world problem. Diplomatically, she is a dere- 
lict. Nationalistically, she is an enigma. 

The first concern is with China economically, which 
means with her as the region whose productive resources 
mark her as the market of the years to come. The in- 
dustrial perspective is of raw materials ; the trade pros- 

277 



278 AMERICAN FOREIGN TRADE 

pect is of the wants which those three hundred and fifty 
million people, constituted as a single body of consumers, 
may acquire and of the articles they, constituted as a 
single body of producers, may provide for sale. 

Agriculture is the chief source of actual buying power 
in the raw materials that go abroad. The mulberry-tree 
is the fruitful factor, for raw silk is the most valuable 
product that is obtained for export. After it come 
soya-beans and other oil seeds; tea, skins, hides and 
furs, medicinal herbs, nuts, oils, and some wool and raw 
cotton, which in the economic sense would be better 
utilized at home. 

Mineral resources are the potential purchasing power, 
for they are the industrial reserve. Some of them, as 
in the case of tin, are also the active element among the 
raw materials. There are twenty-five or twenty-six 
kinds of minerals found within the borders of China. 
The tin amounts to five per cent, of the world production 
of this metal, and there are large deposits yet untouched. 
There is lead and zinc and antimony in exportable 
quantities. There is also copper, some of which is ex- 
ported, although this metal is used so largely in the 
coinage of China that for reasons of geography quanti- 
ties of it have to be imported to meet this use. Oil 
exists in quantities which are yet only guesswork, but 
the extent of which is demonstrated to be a genuine 
national asset. 

Coal and iron ore are the dominating economic fac- 
tors that show the industrial possibilities of China. In 
a general resume it is not necessary to exhibit in detail 
the geographical situation of these minerals or to specify 
where they lie in proximity, so that they may become 
the basis of iron and steel works. The relation of the 



CHINA AND THE PACIFIC 279 

iron and coal deposits to railway building and internal 
development may be inferred. 

Coal reserves are estimated scientifically, and not 
speculatively, at a thousand billion tons, or, as it is put 
graphically, sufficient to keep the world going at its 
present rate for a thousand years. ^ 

Iron ore reserves are estimated at a half billion tons. 
This estimate, like that of coal, has a scientific basis, 
and is not speculative. The known ores available for 
treatment have been mapped out in connection with the 
various foreign concessions, and they are the basis of 
the estimate. 

Industry is declared by some observers to be the pre- 
dominant attribute of the Chinese people. Whether 
they really have a passion for labor, as has been asserted, 
or whether their laboriousness is due to the harsh neces- 
sities of providing existence, may be left to individual 
opinion. But it is the testimony of those who best know 
the people that their industrial faculties are highly de- 
veloped. The Chinese finger has a suppleness and 
delicacy of touch which has given rise to numerous 
artistic products, such as intricate wood-carving, ivory 
miniature painting, and fine embroidery. But it is not 
simply in articles of delicate production for which 
manual dexterity is required that the Chinese are effi- 
cient. They have other qualities. 

The pig-iron of the blast-furnaces in Manchuria and 
the steel-making plant at Han-yang are the examples 
most often cited of their capacity for physical labor of 
the most exacting kind. It is doubtless true that the 
Chinese have a double capacity of muscle and of brain, 

1 Report of V. K. Ting, Director of the Geological Survey of China, 
1917. 



280 AMERICAN FOREIGN TRADE 

but in the broader generalization the population as a 
whole may be said to fit the statement that the Chinaman 
fulfils in the highest degree the ideal of an intelligent 
human machine. What this people ultimately may ac- 
complish when they become fully molded to the new 
enterprises that fall outside of tradition is conjectural. 
It is a conjecture, however, which must be borne in mind 
in every discussion of the resources of the vast territory 
and the transference of raw material into finished 
products. It also must not be forgotten in seeking to 
solve the political problems that are certain to arise. 

The foreign commerce of China follows elementary 
lines. The market abroad, which includes proximate 
countries, such as Japan, is for raw silk, raw cotton, 
tea, oil seeds, wood oils, fertilizers, wools, hides and 
skins, and some metals. The oil seeds furnish the 
largest single export product after raw silk. Antimony 
and tin are the principal metal products. 

The import needs in existing circumstances are kero- 
sene, cotton fabrics of all kinds, some woolens, drugs and 
medicines, soaps, electrical apparatus, and railway ma- 
terial. The latter, along with machinery, is the po- 
tential import of the future rather than of the present. 

Foreign trade is surprisingly small in volume in view 
of the productive resources of the country and the vast 
population to be supplied. In the year before the Great 
War it was approximately only half a billion dollars. 
In the closing year of the war the total was about the 
same. The exports in 1914 were 345,281,000 Haikwan 
taels; the imports 557,109,000 taels. The fluctuating 
value of the tael accounts for the conflicting figures re- 
lating to China's commerce in different years. The phe- 



CHINA AND THE PACIFIC 281 

nomenal increase in the value of silver during the war 
added to the difficulty in making statistical comparisons. 

In 1917 the high-water mark of the trade was reached, 
when it amounted in round numbers to a billion dollars. 
Yet this meant purchases abroad of less than two dol- 
lars per person, and sales abroad in lesser proportion. 
Australia, with a population of five million, buys and 
sells as much as China, with three hundred and fifty 
million inhabitants. Its foreign trade equals three 
quarters of a billion dollars which is fully the average 
of China in ordinary years. 

The trade of the United States with China and her 
three hundred and fifty million consumers is worth no 
more than one-half the trade with Chile, which has four 
million consumers. In ten years it showed no real 
growth, although a somewhat larger volume of China's 
products was absorbed. The exports from the United 
States in 1907 were approximately $25,000,000, and in 
1916, with the inflated war values, they were also 
$25,000,000. There was an actual falling off in quanti- 
ties. Cotton goods, kerosene, sewing machines, and 
similar articles form the bulk of these exports. Against 
these are principally the imports of raw silk. 

A balance in favor of China is not a discouraging 
factor. What is discouraging is the small volume and 
value of the total trade. Yet relatively speaking, it is 
no more discouraging for the United States than for 
other countries. Great Britain's total trade, notwith- 
standing she has been long in the Orient and has made 
heavy investments in Chinese business, is relatively not 
larger. In the year before the war it was a fraction 
under a hundred and ninety-two million taels. There 



282 AMEKICAN FOREIGN TRADE 

was some decrease in China's total trade on account of 
the war, but it was not depressing, for it amounted to 
less than one hundred and fifty million taels. 

Since the total foreign commerce of China with all the 
world is hardly more, for example, than that of Cuba 
with all the world, why should China fill so large a space 
in all discussions of international commerce? The an- 
swer is in the potential trade that will follow the de- 
velopment of the latent resources. It is this which 
interests the United States as legitimately as the benevo- 
lent and unselfish attitude which it has always main- 
tained toward China and the sentimental considerations 
which have been the governing characteristic of its for- 
eign policy in everything that relates to China and the 
Chinese people. 

It is, then, the future trade of China that all the great 
nations have in mind when they treat of the Chinese 
problem. It is a simple matter to say that an increase 
of a yard of cotton for each person in China would add 
visibly to the value of cotton fabrics all over the world. 
An increase of one dollar per person would mean, in 
the ordinary way of reckoning, an enhancement of 
half a billion dollars in the foreign commerce of China, 
for, if the imports were increased $350,000,000, there 
would be at least an increase of $150,000,000 in the ex- 
ports, since China would have to add to her exports in 
order to be able to buy. 

China's economic future depends on the exploitation 
of her coal- and iron-mines and the development of trans- 
portation systems to utilize her raw resources. This 
industrial development is the prospective basis of a 
vast commerce. It rests, however, on the so-called 
foreign concessions, and it raises the whole question of 



1 



CHINA AND THE PACIFIC 283 

not simply the morality, but the utility, of those con- 
cessions. It also raises the question of the economic 
overlordship of other countries. 

This, of course, means Japan, and Japan as she came 
out of the peace conference with the secret treaties no 
longer secret and with the great-war Powers of the 
Western world — that is. Great Britain, the United 
States, and France, as her sponsor. It brings up the 
whole problem of the international status of China and 
of the future commerce of the Pacific. It also serves 
to place in relief the opinion of a celebrated French 
economist delivered shortly after the conclusion of the 
Sino-Japanese War in describing the awakening of Asia. 
He boldly declared that this was in reality the war of 
Western science against Chinese routine, the war of 
progress against immobility.^ In essence this to-day is 
the justification which is urged by Japan in pressing 
her claims for the economic control of China. A rapid 
review of the diplomatic developments is necessary in 
order to understand the status at the end of the Great 
War and the outlook under the peace settlement. 

John Hay as secretary of state proclaimed the open- 
door policy in 1899. This application of American 
policy in the Orient after twenty years has faded into 
a vague memory in most minds. It is therefore timely 
to recall the circumstances in which the United States 
acted. In September and during the following months 
Secretary Hay addressed to the governments of Great 
Britain, Germany, and Kussia a communication concern- 
ing China. Communications identical in substance also 
were addressed to the governments of France, Italy, and 
Japan. 

1 Pierre Leroy Beaulieu, " La Renovation de Asie " : Paris, 1902. 



284 AMERICAN FOREIGN TRADE 

" American commercial rights " was the term used by 
the Government of the United States in defining the 
open-door policy. It was a convenient form for notify- 
ing other governments that the United States was aware 
of their designs to seize territory and partition the 
Chinese Empire among themselves, and that Washing- 
ton was opposed to their purpose of extending their 
spheres of influence by denying China the sovereignty 
of her own territory. The substance of the declaration 
as embodied in the note to Japan was that this country 
was 

animated with a sincere desire to insure to the commerce and 
industry of the United States and of all other nations per- 
fect equality of treatment within the limits of the Chinese 
Empire for their trade and navigation, especially within the 
so-called spheres of influence or interest claimed by certain 
European powers in China.^ 

The next chapter in the declaration of American policy 
with reference to the far East was broader than the open- 
door statement of Secretary Hay. It recognized the 
growing influence of Japan in the far East and also the 
interest of the United States in the Paciflc. It came 
nine years after the Hay exchange of notes. It was in 
the form of an exchange of notes between Elihu Root, 
secretary of state, and Baron Takahira, the Japanese 
Ambassador at Washington in November, 1908. Its 
substance was that the wish of the two governments was 
to encourage the free and peaceful development of their 
commerce on the Pacific Ocean, to maintain the status 
quo in that region, and to defend the principle of equal 
opportunity for commerce and industry in China and 
to preserve the common interest of all powers — by sup- 

1 See Appendix C. for text. 



CHINA AND THE PACIFIC 285 

porting by all pacific means at their disposal the inde- 
pendence and integrity of China and the principle of 
equal opportunity for all nations in that empire.^ 

Nine years passed, and a third declaration emanated 
from the Department of State. The circumstances were 
different from those in which previous declarations had 
been made. Japan had entered the war as an ally of 
Great Britain. She had wrested Shan-tung from Ger- 
many. The United States had become a belligerent. It 
was recognized that the situation in the far East was 
in the hands of Japan. She wanted specific recognition 
by the United States of her dominant position in Asia. 
She got it in what was known as the Lansing-Ishii Agree- 
ment, an exchange of notes between the American Secre- 
tary of State and the Japanese Ambassador in 
Washington. This was promulgated in November, 1917. 
It unequivocally recognized that territorial propinquity 
creates special relations between countries and that 
consequently Japan has special interests in China.^ 

No previous national administration in the United 
States had ventured to make this specific statement. 
While the agreement pledged Japan to respect China's 
territorial integrity, by inference at least, it likewise 
placed the economic future of China in Japan's hands, 
and made her the dictator of the program of economic 
readjustment and social evolution which China in a 
sporadic way had attempted on her own account. 

China, while like a derelict at sea unable to chart a 
course, nevertheless was not willing to be ignored in 
matters affecting her own sovereignty and independence. 
The Peking government gave publicity to a note in 
which, following the language of the Lansing-Ishii agree- 

iSee Appendix C. 



286 AMERICAN FOREIGN TRADE 

ment, "in order to avoid misunderstanding/' it made 
known that views of the government were these: 

The principle adopted by the Chinese government towards 
the friendly nations has always been one of justice and 
equality; and consequently the rights enjoyed by the friendly 
nations derived from the treaties have been consistently re- 
spected, and so even with the special relations between the 
countries created by the fact of territorial contiguity, it is 
only in so far as they have been provided for in her existing 
treaties. Hereafter, the Chinese government will still ad- 
here to the principle hitherto adopted, and hereby it is again 
declared that the Chinese government will not allow herself 
to be bound by any agreement entered into by other nations. 

In the press despatches from Washington at the time 
it was stated that the State Department, while recog- 
nizing that there might be some tone of regret that 
China was not made a part of the proceedings, refused 
to consider the note as a protest. This, it was com- 
placently stated, was so minor a consideration that 
further explanation to China was not projected. The 
inspired press statement said also that there was in- 
dication that the State Department considered the 
Chinese note such an acceptance of the principle of 
national rights and neighborly interest as the United 
States would like to see recognized throughout the 
world. 

China, from subsequent events at the Paris peace 
conference, apparently did not take this view of national 
rights and neighborly interest. 

The Lansing-Ishii Agreement was interpreted by au- 
thoritative Japanese spokesmen as an invitation for the 
United States to become the business partner of Japan. 
At that time a special Japanese finance commission was 



CHINA AND THE PACIFIC 287 

in the United States. Baron Megata, its head, in a 
newspaper interview said that China, with her huge 
latent resources, offered a very inviting field for de- 
velopment, and he hoped that when the time seemed 
ripe plans might be formulated for joint participation 
of the financial and industrial interests of the United 
States and Japan in the development of her resources. 
This view was also given expression in other authorita- 
tive quarters. 

Tentatives toward this financial rapprochement were 
made. Plans were put forward which were purely of 
private origin. Others seemed to have the approval of 
the Japanese Government. The basis of all of them 
was partnership in developing or exploiting China. A 
Chinese cartoonist with a sense of Western humor pre- 
sented one view of the situation. He drew a picture of 
a cow. The United States was feeding the animal ; Ja- 
pan was milking the cow. 

In financial and diplomatic circles, in view of these 
suggestions of partnership, some study was made of 
Japan's resources. The question in the background 
was how far Japan might be able to carry forward the 
development of China with her own capital and how 
far she might contribute to an international partner- 
ship. The wealth of Japan at the beginning of hos- 
tilities was estimated at 118,500,000,000.^ This would 
be about |363 per person. The war gains of Japan 
may have brought her total national wealth up to |20,- 
000,000,000. It is not enough to place her on an equality 

1 This is characterized by a leading authority — Prof. Stanley K. 
Hornbeck, "Contemporary Politics in the East," New York, 1916 — as 
a liberal estimate. Dr. J. C. Stamp of the Royal Statistical Society 
gave $12,000,000,000 as figures which might be more than 40 per cent 
inaccurate. 



288 AMEKICAN FOREIGN TRADE 

with the United States in an international financial 
partnership. 

Months after the Lansing-Ishii Agreement, President 
Wilson's administration reversed its position on loans 
by American bankers to China, but there was no specific 
indication that they were expected to act in concert with 
Japanese financiers. Separate action, however, appar- 
ently was not contemplated, because at the Paris con- 
ference the plan of President Taft's administration for 
helping to finance China was indorsed by the formation 
of the so-called consortium.^ Under this proposed ar- 
rangement Japan would participate in the loans to 
China just as she was to participate in the former loan. 
She would be no more a partner of the United States 
than of England and France. 

These international loans, if made, unquestionably 
mean a marked increase in the foreign trade of China. 
They also raise some pointed questions. Will they fur- 
ther rivet China's economic chains by the securities they 
exact in the way of appropriating the revenues, or will 
they start an irresistible movement for economic inde- 
pendence? China now is an international debtor, with 
foreign control of her maritime customs and salt tax. 
Revenues also are pledged as security for the Boxer In- 
demnity, which need not be paid in full until the end 
of 1940. 

The extra-territorial jurisdiction of foreign powers 
over the tariff is similar to that which obtained in 
Japan until that power asserted her own sovereignty 
and secured the abrogation of the treaties. Previous to 
the Great War, the foreign nations had shown a will- 
ingness to assist China in obtaining tariff independence. 

1 See Chapter XX. 



CHINA AND THE PACIFIC 289 

The Shanghai International Commission in 1902 had 
provided for an effective five per cent, ad valorem sys- 
tem changed to specific duties. The Anglo-Chinese 
Commercial Treaty of later date, in return for China's 
abolition of the likin and other internal transit duties, 
had agreed to an increase of the customs tariff twelve 
and a half per cent. This treaty was not ratified. Dur- 
ing the Great War further efforts were made for a 
tariff adjustment, but China's inability to reform the 
likin taxes stood in the way. It may stand in the way 
for years to come, yet some day Chinese nationality may 
assert itself, and tariff autonomy be insisted on. The 
question then will arise, What will Japan do? Already 
she has built up her own industries under a protective 
tariff. China's resources that have been conceded to 
her are contributing to these industries. Will Japan 
then consent to a policy which will result in a Chinese 
home market? That is one of the grave questions of 
the future. 

The United States is interested in stable and orderly 
government in China. It is interested in all measures 
for her to strengthen herself as a really independent 
nation. It is interested in her fiscal and economic 
independence as a means of national development 
that will promote trade. Should China follow the ex- 
ample of Japan and move to free herself from the de- 
pendence on other nations in fiscal policies, the United 
States would be bound to adopt the same liberal course 
that it showed toward Japan. The acid test would be 
for Japan and perhaps for Great Britain, but not for 
United States. If north and south China are able to 
agree, if nationalistic sentiment develops that will 
unify them, and, following the assertion of territorial 



290 AMERICAN FOEEIGN TEADE 

sovereignty, demands economic sovereignty, the United 
States will be in the position of a large foreign investor 
interested in the development of the riches of the conn- 
try. In the past the United States has been the dis- 
interested friend of China. Its disinterestedness has 
not been fully effective. As an interested friend, its 
influence should be greater. 



CHAPTER XX 

INVESTMENTS ABROAD 

Trade that follows the export of capital — Fundamental changes as a 
consequence of the war — Review of practice in the past — Extra-terri- 
torial character of branch factories — State Department formula regard- 
ing loans and development enterprises — Popular prejudice against 
claims — Experiences in Spanish- American countries — Lack of contin- 
uous national policy — The Chinese incident — President Wilson's re- 
versal — Principle of the international consortium — The world as the 
field of American investments. 

THE new era is essentially the era of the trade that 
follows foreign investments. The position of 
the United States as a creditor nation is rein- 
forced by the conditions calling for the export of capi- 
tal. Primarily it is a situation to be met by the bankers. 
The flotation and safeguarding of foreign securities is 
peculiarly their function, but these securities rest on 
the foreign trade of the United States. 

Much of the discussion in this volume has been in 
regard to the ordinary exchange of manufactured ar- 
ticles and natural products without regard to the busi- 
ness that is created by investments in the foreign coun- 
tries, but in the background there always has been the 
broader subject. Even had world peace instead of world 
war been the condition in 1914 and afterward, the 
foreign trade resulting from investments abroad would 
have occupied a leading place in American trade 
policy. The desirability of encouraging investments 
abroad as a means of promoting domestic prosperity 

291 



292 AMERICAN FOREIGN TRADE 

through foreign trade was already receiving attention. 

Following the Great War, the significant circum- 
stance is that the United States Government, by war 
loans, has become a creditor of certain governments, 
and has invested in their solvency. It therefore should 
be in a sympathetic frame of mind toward its own na- 
tionals who may make investments abroad, either 
through private loans to foreign governments, in the 
securities of foreign industrial corporations, in develop- 
ment enterprises carried on by the subjects of foreign 
governments, or in similar enterprises carried on by 
themselves. The conditions in devastated Europe, in 
China, and in South America will be different, but the 
principle will be the same. 

Since the subject of future investments abroad thus 
becomes one of present interest, it is desirable to ex- 
amine briefly what has been their nature in the past, 
and what has been the policy of the United States in 
regard to them. 

One of the earliest forms of American investments 
abroad, particularly in Europe, was in branch factories. 
A sharp line of distinction was drawn between the 
different classes of these factories. Large manufac- 
turers and importers of certain goods, chiefly wearing 
apparel, such as hosiery, silks, and laces, in some in- 
stances bought the entire output of foreign industries in 
order to supply their customers. Usually, how^ever, they 
found it more convenient to own the factories outright. 
While the capital thus invested was American capital, 
it was not so employed as to advantage American labor, 
or American producers through the purchase of raw 
material. 

Another class of branch factories ceased to be branches 



INVESTMENTS ABROAD 293 

and became nationalized foreign industries. In many 
cases of this kind the patent laws of different countries 
made it necessary ; but usually there was wider field, and 
parent companies parted not only with their patents, but 
with all interest except the name. This, in particular, 
was true of electrical manufacturing enterprises and of 
sewing-machine and similar companies that established 
themselves in Europe. They were foreign enterprises 
controlled by the nationals or subjects of foreign govern- 
ments, sometimes under an American name. 

A third form was the establishment of industrial 
plants that either consumed semi-raw material or re- 
quired to be constantly renewed by the supply of parts 
from the United States. Usually these were undertaken 
in pursuance of the national policies of other countries 
to secure the development of domestic industries. Man- 
ufactures of agricultural machinery are the most notable 
examples of this class. They have been established on 
an extensive scale in Canada, Russia, Germany, and 
France. 

All enterprises of extra-territorial character become 
subject to the municipal law of the nations in which they 
are established. Yet a considerable volume of corre- 
spondence constantly goes on with the Department of 
State in which companies domiciled in foreign coun- 
tries assume that they are entitled to the full rights of 
American companies. The department, sometimes by a 
friendly diplomatic representation, is able to secure 
mitigation of legal hardships, but it never assumes to 
relieve these enterprises from the operation of the laws 
of the country in which they are domiciled. 

The general policy of the Government in relation to 
extra-territorial factories was set forth in a circular let- 



294 AMERICAN FOREIGN TRADE 

ter from the Department of State in 1910 to American 
diplomatic and consular officers. Secretary Knox in 
this circular drew a distinction between expatriation in 
business enterprises and the citizenship of the person en- 
gaged in them. The doctrine was laid down that extra- 
territorial factories benefited foreign rather than Ameri- 
can labor, and were likely to compete in the country 
where they were established, and perhaps in neighbor- 
ing countries, with the output of similar factories in the 
United States. 

Specific application of the principle was made to 
American manufacturers who moved all or part of their 
plants to Canada. This class, it was held, were not en- 
titled to the assistance of the Government of the United 
States. But the department recognized that there were 
circumstances which might justify the extension of the 
assistance of the Government to extra-territorial facto- 
ries, as where an established manufacturing enterprise 
in the United States that exported its products to for- 
eign markets might find it expedient to meet competitive 
conditions by establishing a branch there, thus pre- 
serving and fostering the main export business. 

While the official assumption was that American enter- 
prises that transferred themselves to a foreign country 
thereby lessened the opportunities for the employment of 
American labor, nevertheless there was also recognition 
that some of them afforded a wider market for American 
products through the installation of the industrial 
plants, and through the supply of semi-finished products 
which followed. In the future, under the changed world 
conditions, the question of branch factories is likely to 
assume larger proportions than in the past, yet its solu- 
tion offers no serious difficulties. A tolerant spirit and 



INVESTMENTS ABROAD 295 

acquiescence in the actual circumstances, without accept- 
ing undue responsibilities, will serve to meet the situa- 
tion. 

The greater question of the future of investments 
abroad in the wider field that may be offered for the 
output of American industries relates principally to 
loans, and to capital put into development enterprises 
without losing their American nationality. The formula 
of the Department of State in regard to foreign invest- 
ments of this character has not varied greatly, notwith- 
standing the actual change in practice following changes 
in national administrations. 

During President Taft's administration the formula 
as expressed by Secretary Knox was that the department 
would give all proper support to legitimate and beneficial 
American enterprises in foreign countries. This cer- 
tainly afforded no wide latitude for reckless investments, 
since the department itself was the judge of what con- 
stituted legitimate and beneficial enterprises and of what 
should constitute proper support. Under President Wil- 
son the language of the formula was varied, but its es- 
sence was not changed. It was expressed in Secretary 
Lansing's letter to the Chicago bankers who made a pre- 
liminary loan of $5,000,000 to China in June, 1917 : 

I have read the contract between yourselves and the re- 
public of China with reference to a loan of $5,000,000 for a 
period of three years, and I have to say in reply to your 
oral request for a statement of the policy of the Department 
respecting such loans that the Department of State is always 
gratified to see the Republic of China receive financial assist- 
ance from the citizens of the United States, and that it is the 
policy of the Department, now as in the past, to give all 
proper diplomatic support and protection to the legitimate 
enterprises abroad of American citizens. 



296 AMERICAN FOREIGN TRADE 

Yet formulas alone are not sufficient to meet the in- 
vestment conditions of the new era. 

There are perils in foreign investments. One of these 
is the lack of an understanding at home of their nature 
and of their influence on American economic policies. 
Capitalists make investments abroad for the same rea- 
son that they make them at home, which is for profit. 
In seeking profit abroad for themselves, they also pro- 
mote profit for others. They take more risk than in in- 
vestments at home, and they look for greater returns. 
This is an unalterable law of business. It has to be 
borne in mind when those who have put money in enter- 
prises in other countries are held up as greedy exploit- 
ers. Though it is easy for political demagogues to de- 
nounce them and to create a prejudice against them, it 
is not just to make oratorical declarations encouraging 
Americans to seek foreign fields for their surplus capital 
and at the same time to discredit them at home. Either 
they have grounds for assuming the support of their Gov- 
ernment, or they have not ; and if they have not, few will 
care to adventure abroad. 

Americans who invest in foreign countries have both 
legal rights and moral rights. Their legal rights may be 
circumscribed within the limits of municipal law as in- 
terpreted under the law of nations. Their moral rights 
are to a presumption that they and their representatives 
are reputable American citizens. Capitalists as a rule 
do not entrust their interests abroad to persons without 
character. The character of their representatives 
abroad is even more important than the character of 
their representatives at home, because a larger respon- 
sibility rests on those who serve them abroad. This is 
the general rule. 



INVESTMENTS ABROAD 297 

Friction in the past, where it has developed, most com- 
monly has come from private loans to foreign govern- 
ments either for national development projects or for 
refunding purposes, and from contracts and concessions 
for public improvements. Out of government obliga- 
tions in the form of debts sometimes grow repudiation; 
out of contracts and concessions grow controversies with 
governments. Claims follow, and international compli- 
cations sometimes result. Contrary to a common im- 
pression, the United States has had few complications 
of this kind, possibly for the reason that its nationals 
have made few foreign investments of any kind. 

Spanish America has been the field of scandalous spec- 
ulative loan investments by individual men, and while 
some money has been advanced on them, usually the bor- 
rowing country has obtained a very small amount of 
cash. A group of British capitalists once loaned to a 
corrupt executive in Honduras nominally |3,000,000, 
and actually advanced |1,500,000 cash. This grew by 
compound interest and other means until it figured in 
the report of the British association, known as the For- 
eign Bondholder's Corporation, as $100,000,000, and it 
still figures at that sum in some of the international com- 
pilations of Latin- American debts. This was an extreme 
case, yet it was typical of many others. 

The United States Government has not looked with 
favor on the policy of the European governments for the 
forcible collection of public debts, but it never has denied 
them certain privileges, such as the seizure of customs 
and, theoretically, it has not denied the right of tempo- 
rary occupation of the territory of the debtor country. 
Yet it also has subscribed to what is known as the Drago 
Doctrine. This is the twentieth-century adaptation of 



298 AMERICAN FOREIGN TRADE 

the Calvo Doctrine that no creditor country is entitled 
forcibly to collect from a debtor country. It was pro- 
mulgated in 1902, when European powers were threaten- 
ing Venezuela, by the eminent Argentine publicist, Dr. 
Luis M. Drago. As minister of foreign affairs of the Ar- 
gentine Republic, he addressed a note to the Government 
of the United States, setting forth the principle that pub- 
lic debts cannot authorize armed intervention or actual 
occupation of the territory of American nations on the 
part of any European power. Secretary Hay replied, 
acquiescing in the general principle. 

Taken with the attitude against European govern- 
ments forcibly collecting debts in Spanish America, this 
may be accepted as the definite policy of the United 
States. Loans made by banking syndicates in the fu- 
ture financing of South America will be with the knowl- 
edge that the United States will not enforce their col- 
lection with war-ships. Nevertheless, it will not pre- 
clude diplomatic representation and the exercise of good 
offices where difficulties arise. But both the economic 
and the political prospects of the South- American coun- 
tries are now so well understood that loans are not likely 
to be made to governments which either through insta- 
bility or indifference to their obligations may raise diffi- 
culties in payment. 

Pecuniary claims are a more frequent source of irri- 
tation. South- American governments, in making con- 
tracts for public improvements, for railway concessions, 
and similar enterprises, usually insert a stipulation that 
the nationals of other countries who are parties to the 
contract shall forego diplomatic rights of reclamation in 
any dispute that may arise. When controversies have 
arisen, both European governments and the United 



INVESTMENTS ABKOAD 299 

States have ignored this stipulation, and have acted on 
the presumption that it was entered into under a species 
of duress and had no binding effect. This is a sore spot 
with all the Ibero-American countries, and at Pan- 
American Conferences unavailing efforts have been made 
to secure an agreement under which the United States 
would accept their principle. 

On the surface a stipulation of this kind seems proper 
enough, and it might be said that nationals of other coun- 
tries take their chances, and should abide by the conse- 
quences of their acquiescence; but if this position were 
rigidly ahered to, much of the material progress that 
South America has shown would not have been secured, 
and material progress there is the basis of political 
progress. Jurists in the more advanced Ibero-American 
countries, while sensitive to the implied reflection on 
all the republics, and while insisting on the general prin- 
ciple, know why neither England nor the United States 
has acquiesced in its rigid observance. They know that 
the courts of some Spanish-American republics are not 
free, and that in any controversy between the govern- 
ment and foreigners, the judicial tribunals will decide as 
the elecutive wishes. There have been instances in 
which the executive was complaisant toward an adverse 
decision, and in those cases the foreigners have obtained 
their rights. 

The claimant, whether he be before Congress or before 
the executive departments in Washington, universally 
is looked upon as a nuisance. The justice of his claim 
does not mitigate this harsh judgment. Sometimes the 
pathos of it all, as centered in the personality of the 
claimant, appeals to the novelist or the dramatist, but 
when their art is served, they drop the subject, and the 



300 AMERICAN FOREIGN TRADE 

literary charm of claims falls back into the shadows. 
In the case of foreign claims there is less of the pathetic, 
perhaps, but the mere fact of the claims being against 
other governments than their own seems to add to the 
prejudice entertained against the claimants. The as- 
sumption is that some " bad " Americans are trying to 
rob " good " foreign governments. 

A little reflection will show that the Department of 
State, before pressing any claim against another nation, 
makes a careful investigation to determine its justice. 
The chorus of complaints that constantly goes up, which 
sometimes is voiced in Congress and sometimes in news- 
papers, is that Washington is unwilling to see justice 
done to its own citizens. This simply indicates that in 
many instances the department has not been convinced 
that the claim is a proper one for it to press. Doubtless 
occasionally its judgment is wrong, but when a claim is 
pressed by Washington the American people will be safe 
in assuming that their Government is fully convinced of 
its righteousness. 

The American people never have shown an unwilling- 
ness to rectify any injustice that may have been done a for- 
eign government in pressing claims. An illustration of 
the manner in which the national honor has been vindi- 
cated was in the notorious Weil and the La Abra claims 
against Mexico. These had nothing to do with foreign 
investments. They were concocted so skilfully as to 
deceive both the American and the Mexican govern- 
ments. After they had been allowed by Mexico, and the 
awards partially paid, it was discovered that they were 
fraudulent. Without hesitation, the executive depart- 
ment recommended that an appropriation be author- 



INVESTMENTS ABROAD 301 

ized to repay Mexico, and restitution was made by Con- 
gress. 

In the case of investments in revolutionary-ridden or 
war-ridden Ibero-American countries, the United States 
never has taken unfair advantage of its position, or 
shown a disposition to encourage exaggerated or fraudu- 
lent claims. At the same time it has held strictly to the 
principles of international law governing the rights of 
foreigners domiciled and owning property in foreign 
countries. A striking example was found after the 
Spanish-American War. Many Americans who had 
owned sugar-plantations and other property in Cuba 
which had been damaged during the period of insurrec- 
tion against Spain came forward with claims. A semi- 
judicial tribunal was established which adjudicated these 
claims, and decreed the amount to be paid by the Repub- 
lic of Cuba as the sovereign successor of Spain. The en- 
tire work was concluded within a few years, and the 
awards were surprisingly small, the total being approxi- 
mately 16,000,000. 

These instances might be kept in mind by those who 
are accustomed to decry their fellow-Americans that 
have occasion to press claims against other countries. 
There can be no expansion of American investments in 
foreign countries without the possibility of some com- 
plications in individual cases, but forethought by the 
investing capitalists will reduce these possibilities to a 
minimum, and the exercise of firm, but judicious diplo- 
macy will enable the few that do arise to be settled with 
a minimum of diplomatic friction. 

The lack of a continuous policy in foreign affairs is 
another of the perils of investments abroad. The 



302 AMERICAN FOREIGN TRADE 

changes in national administrations, most frequently, 
though not always, due to shifts in political power, have 
caused bewildering changes in foreign policies. When 
Vice-President Arthur succeeded Garfield, the policy of 
the Garfield administration with reference to the Pacific 
coast of South America and the war between Chile and 
Peru was abruptly reversed, and much that had been 
done was repudiated. The United States, after a third 
of a century, has not fully recovered from the effects of 
that course. When Grover Cleveland first assumed of- 
fice as President, he withdrew various treaties affecting 
canal relations and trade relations with Central America 
and the West Indies. They foreshadowed a policy of 
expansion and control with which he was not in sym- 
pathy. Yet after thirty years another President of the 
same political faith became the instrument of enforcing 
those policies. 

The action of President Wilson in abruptly annulling 
the six-power loan in China in 1913, and thus prevent- 
ing the cooperation of American banking syndicates with 
European syndicates in developing China's resources, 
was an example of the lack of a continuous policy. His 
objections to the participation of American bankers in 
the Chinese loan were in substance that it infringed the 
sovereignty of China and might ultimately require for- 
cible intervention in the affairs of the country. He said : 

The conditions of the loan seem to touch very nearly the 
Administrative independence of China itself, and this Ad- 
ministration does not feel that it ought even by implication 
to be a party to those conditions. The responsibility on its 
part which would be implied in requesting the bankers to 
negotiate the loan might conceivably go the length in some 
unhappy contingency of forcible interference in the finan- 
cial and even the political affairs of that great Oriental State 



INVESTMENTS ABROAD 303 

just now awakening to a consciousness of its power and its 
obligation to its people. 

Five years and the Great War brought a change. In 
July, 1918, publicity was given to the approval by the 
national administration of proposed loans to China by 
American bankers. It was understood that the amount 
would be 150,000,000. The new policy was declared 
to be the result of war conditions. President Taft's 
administration had acted under peace conditions, with 
the declared purpose of putting the United States in a 
stronger position to defend China's integrity. "The 
United States had forced its way into the Chinese loan 
market in order, by means of investments, to strengthen 
the position of the Government for the defense of the 
open-door policy and China's integrity." Thus wrote 
Professor Stanley Hornbeck, an authority on the diplo- 
macy of the far East. 

The ofl&cial announcement as made by the Department 
of State took pains to emphasize the war nature of the 
Government's action, so that China would be better able 
to defend itself against enemy forces approaching its 
borders. The text of the official statement is of interest. 
It follows: 

China declared war against Germany very largely because 
of the action of the United States. Therefore this Govern- 
ment has felt a special interest in the desire of China so to 
equip herself as to be of more specific assistance in the war 
against the Central Powers. 

Until the present time the engagements of the United 
States in preparing to exert effectively its strength in the 
European theatre of war has operated to prevent specific 
constructive steps to help China realize her desires. Re- 
cently, however, this Government felt that, because of the 
approach to Chinese territory of the scenes of disorder, a 



304 AMERICAN FOREIGN TRADE 

special effort should be made to place proper means at the 
disposal of China. Consequently a number of American 
bankers, who had been interested in the past in making loans 
to China and who had had experience in the Orient, were 
called to Washington and asked to become interested in the 
matter. The bankers responded very promptly and an agree- 
ment has been reached between them and the Department 
of State which has the following salient features: 

First — The formation of a group of American bankers to 
make a loan or loans and to consist of representatives from 
different parts of the country. 

Second — ^An assurance on the part of the bankers that they 
will cooperate with the Covemment and follow the policies 
outlined by the Department of State. 

Third — Submission of the names of the banks who will com- 
pose the group for approval by the Department of State. 

Fourth — Submission of the terms and conditions of any 
loan or loans for approval by the Department of State. 

Fifth — Assurances that, if the terms and conditions of the 
loan are accepted by this Government and by the Govern- 
ment to which the loan is made, in order to encourage and 
facilitate the free intercourse between American citizens and 
foreign States which is mutually advantageous, the Govern- 
ment will be willing to aid in every way possible and to make 
prompt and vigorous representations and to take every pos- 
sible step to insure the execution of equitable contracts made 
in good faith by its citizens in foreign lands. 

It is hoped that the American group will be associated with 
bankers of Great Britain, Japan, and France. Negotiations 
are now in progress between the Government of the United 
States and those Governments which it is hoped wiU result 
in their cooperation and in the participation by the bankers 
of those countries in equal parts in any loan which may be 
made. 

Besides the war-like conditions which confront China on 
her northern and western borders, there is a further incen- 
tive to cooperate with all these Governments because the 
war has created a community of interest between them and 
their citizens and those of other Governments, and has broken 



INVESTMENTS ABROAD 305 

down barriers which once have existed and has made easier 
the intercourse between them. It is hoped that if the pro- 
ject succeeds it will serve as an agency through which this 
community of interest and the consequent expansion of our 
mutual interests abroad may be adequately and properly ex- 
pressed. 

In the months that followed this official announcement 
apparently not much progress Tvas made in the negotia- 
tions, but the Department of State was following a defi- 
nite course which bore fruit at the Peace Conference. 
Following the publication of the covenant of the League 
of Nations and the terms of the Peace Treaty, came the 
announcement from Paris that the United States had 
sanctioned an international consortium for combining 
the interests of American, British, French, and Japanese 
groups in China and for undertaking joint financial ad- 
ministrative and industrial loans to the Chinese Govern- 
ment. This w^as in May. 

In the Associated Press despatch from Paris it was 
stated that the American Government had taken the 
initiative in the movement in a note to the three other 
powers, setting forth the principles on which it w^as pro- 
posed to establish the consortium. The consortium may 
be described as international cooperation, or as interna- 
tional participation in the future of China. In what- 
ever manner the details may be w^orked out, it bears on 
the attitude of the United States Government toward all 
foreign investments by its nationals. The basis of all 
loans and investments abroad is the development of the 
resources of the countries in which they are made. This 
means the supply of materials which become factors in 
foreign trade. 

Under the new conditions the responsibility of bank- 



306 AMERICAN FOREIGN TRADE 

ers, capitalists, and industrialists to the countries in 
which the investments are made becomes responsibility 
to their own government, because it assumes responsibil- 
ity for them. The conclusion which may be drawn re- 
garding the relation of the Government of the United 
States to the investment of its nationals abroad is that 
it will be one of guidance and of guardianship, but not 
of beneficiary or of partnership. More important is the 
indication of a continuous and consistent policy. As a 
consequence of the action at Paris, the trade that fol- 
lows investments abroad gains definite recognition. 
The whole world is the field for American investments. 



i 



CHAPTER XXI 

THE AMERICAN BUSINESS MAN 

Relation to the Government changed by the war — Causes of aloof- 
ness — Distrust of Bureaucracy — Why he does not come to Congress 

— Lawyer politicians equally ignorant of international questions — 
Some examples of business ignorance — Sporadic foreign trade forays — 
Applying the remedy — Success of the big concerns — Coordination with 
the Government — Cooperation in selling abroad — Educational factors 

— World commerce as the business of the United States. 

THE American business man finds himself a world 
business man. As a consequence of the Great 
War, his geographical knowledge has been vis- 
ibly increased. International affairs have become an 
every-day topic to him. Foreign trade in its general 
outlines has become almost as familiar to him as domes- 
tic trade. There has been an educational evolution on 
this subject. 

He finds that he is in sympathetic fellowship with his 
Government. The sensation is both strange and satis- 
fying. Whether he is engaged in the business of manu- 
facturing, of farming, of merchandizing, of financing, or 
of transportation, he feels himself in a new relation. In 
the past his attitude toward public affairs and especially 
toward the national government has been one of aloof- 
ness, often merging into positive antagonism. He could 
not comprehend bureaucracy. It was maddening when 
an urgent matter was laid before one of the executive 
departments in Washington to get an official answer 

307 



308 AMERICAN FOREIGN TRADE 

couched in formal language, saying that the subject 
would receive due consideration. 

The formal style of communication annoys the busi- 
ness man when it does not awe him. He cannot under- 
stand why he is addressed stiffly as " Sir/' and why some 
cabinet officer, in acknowledging a letter, finds it neces- 
sary to assure him, the business man, that he, the cabinet 
officer, has the honor to be ^' his obedient servant." He 
prefers something like " Yours truly " to place him on a 
more familiar footing. But these circumstances are not 
of overwhelming consequence. Governmental business 
can not be carried on with the same directness as private 
business, though the methods may be simplified. 

The business man customarily is a member of some 
organization which relates to his own form of industry 
or trade. He may also belong to a chamber of com- 
merce, which represents the industrial and commercial 
activities of the community as a whole. The capable 
secretary of either or of both associations preparies reso- 
lutions, for which he votes, usually without discussion. 
They fairly interpret the opinions of the members or they 
would not be passed. Yet the mental attitude of the in- 
dividual man is one of lack of real interest, a feeling that 
his voice is inarticulate, because the executive, or Con- 
gress, pays no attention to business men. Not infre- 
quently this feeling is justified because it is disclosed 
that the only recommendations wanted are those which 
approve a policy already determined on. Where they 
fail to do this, they are ignored. 

Commonplace moralizing about the indifference of 
business men to national affairs, and their failure to 
make their voice articulate by becoming members of 
Congress, sheds little light on the causes of the custom- 



THE AMERICAN BUSINESS MAN 309 

ary aloofness. The real explanation is that the business 
man in the United States is the victim of his own suc- 
cess. Concentration in any line of endeavor is the indis- 
pensable requisite of success. But concentration on 
one form of industrial or commercial activity eliminates 
a wider interest and a wider knowledge. Hence it hap- 
pens that when the successful business man responds to 
a popular demand or to the exigencies of a local political 
machine, and perhaps to some stirrings of ambition 
within himself for a broader field than his business of- 
fers, and comes to Congress, he rarely stays. 

The business man in either branch of Congress always 
has an attentive audience when he speaks on the sub- 
ject with which he has become familiar through actual 
experience. The ablest lawyers in the Senate one day 
were discussing an intricate question relating to the 
mining laws. They confuted each other with great abil- 
ity, and the Senate itself, which looked to them for light, 
was in a hopeless maze. A senator from a mining State, 
whose bonanza strike had been responsible for his com- 
ing to the Senate, twisted uneasily in his chair, but did 
not venture to say a word. He had not the gift of speech 
to begin with, and had he possessed it, he would have 
been overawed by the company in which he found him- 
self. 

When the lawyer-senators were hard at each other 
disputing law and facts, and getting into a bad temper, 
one of them happened to glance at his miner colleague. 
Almost unconsciously he appealed to the latter on some 
question of fact where a little genuine information was 
worth a vast quantity of legal opinion. The diffident 
mining senator answered the question, and in doing so 
got to his feet. Another question was asked him, and 



310 AMERICAN FOREIGN TRADE 

he answered that, and then, without premeditation and 
without consciousness that he was addressing the most 
august law-making body in the world, he talked for half 
an hour on " miners' law," the pioneer conditions under 
which it sprang into existence, the situations it solved, 
and the statute laws which had flowed from it. 

The confused Senate soon perceived a logical chain of 
reasoning based on actual knowledge. When he was 
done, both the controversial senators made their ac- 
knowledgments, and admitted that they had been talk- 
ing about something concerning which they knew noth- 
ing. The Senate acted on the information given by the 
miner-senator. 

This illustration could be repeated in numerous other 
instances where senators and representatives who come 
within the category of business men and not lawyers 
have had the opportunity to enlighten their colleagues on 
subjects with which from experience they were familiar. 
The trouble usually is that there are so few of these mat- 
ters, or the business man thinks there are. His view is 
the concentric one. He is looking at the subject from 
the particular angle in which his business has educated 
him. 

Where there is a business man whose business is such 
that it permits him to go into politics and get elected to 
Congress before he is forty years of age and to continue 
there, he exercises a marked influence on legislation. As 
a rule, lawyers who enter Congress after forty are no 
more successful than are business men who become mem- 
bers after reaching that age. The House of Representa- 
tives is the most democratic parliamentary body in the 
world, and the Senate, despite tradition, is equally demo- 
cratic. The man who knows his subject, who has any- 



THE AMERICAN BUSINESS MAN 311 

thing in him, cannot be held back by artificial barriers. 

While it is desirable that there should be more busi- 
ness men in Congress, yet it must be recognized that the 
driving nature of American commerce and industry does 
not encourage the expectation that there will be many 
who can mix in public affairs and become congressmen 
before they are forty. Consequently, the country will 
continue to look to the lawyer-politicians for legislation, 
and the most that can be expected is that business men 
will exercise their influence more directly and with bet- 
ter organization than has been customary. 

Law-making — that is, constructive law-making — is 
complicated work, and requires a knowledge of many 
subjects and their relation one to another. It calls for 
a long apprenticeship. The pages of the Congressional 
Directory ar<e speaking testimony to the nature of this 
apprenticeship. The biographies of the individual mem- 
bers are records of service as state's attorneys or prose- 
cuting attorneys, as county judges and circuit judges, 
and as representatives and senators in the legislatures 
of the States. This is the natural progression toward 
a seat in Congress, and it is another explanation of why 
the lawyer-politicians always will be in the numerical 
preponderance. They get to Congress after constant 
service in other positions in which knowledge of the law 
and its application are constantly put into practice. 

On one subject the business man in Congress, if he 
chooses to assert himself, is on a full equality with the 
lawyer-politicians w^ho are his colleagues. This is for- 
eign affairs. Students of the congressional system and 
executive officials in Washington who have to bear 
largely the responsibility of conducting the relations of 
the United States with other governments have com- 



312 AMERICAN FOREIGN TRADE 

mented disconragingly on the ignorance and indifference 
of members of Congress to the relations of the United 
States with foreign countries. 

It is not due to lack of patriotism, for ordinarily all 
that the congressmen want to know is w^hat the Govern- 
ment considers the patriotic thing to be done, and when 
that is known, they will do their part. But it is difla- 
cult to persuade them to study and learn something about 
the circumstances which govern the policies of other 
countries. There is a simple, if not a satisfying, reason 
for this ignorance. It is the lack of interest on the part 
of their home people in anything outside of the immedi- 
ate environment. The post-office and other patronage, 
the appropriation for a public building, the amount of 
the district's share in the River and Harbor Bill, are of 
much more consequence. For that reason the represen- 
tative gives his time to them. 

It is doubtful whether at any time the House of Rep- 
resentatives, out of more than four hundred members, 
has a score who are interested in foreign affairs, and 
who take the pains to inform themselves so as to act 
intelligently on international questions. The Senate, 
partly because of its share in the treaty-making power, 
has a larger proportion than the House, but it is nothing 
to boast of. There are few senators who would seek a 
place on the Foreign Relations Committee in preference 
to a place on the Committee on Commerce which con- 
trols the river and harbor allotment, on Appropriations, 
or even on Public Buildings. 

The Spanish-American War enlarged the horizon of 
foreign relations, but the effect was not noticeably broad- 
ening in the education of Congress as a body. The Great 
War has done more, because it is so far vaster in its 



THE AMERICAN BUSINESS MAN 313 

causes and in its consequences ; but even here it is not 
certain that there will be a marked increase in the num- 
ber of senators and representatives who care to inform 
themselves fully, so as to understand world affairs in 
their bearing on the foreign relations of the United 
States. 

The business man who is interested in foreign trade, 
by that very fact should be better fitted to form a judg- 
ment on international policies than the congressman 
whose greater interest is in the local affairs of his dis- 
trict. Yet in the past he has not measured up to the 
standard of knowledge which might be expected of him 
either regarding the proper functions of his own Govern- 
ment in connection with trade or the requirements of for- 
eign markets. The antagonistic attitude of one class of 
business men to their own Government and their misun- 
derstanding of its functions in extending their business 
abroad affords some amusing illustrations. 

It was the manufacturer of a highly protected com- 
modity who, on receiving a report from his European 
agent that Sweden was about to impose a tariff on his 
product for the purpose of encouraging its manufac- 
ture, wrote an urgent letter to the Department of State, 
demanding that immediate action be taken to prevent 
Sweden from adopting this tariff duty. It was a manu- 
facturer of wire products who had established a branch 
factory in one of the South American countries, because 
the domestic policy was to encourage the manufacture 
there rather than importation, who wrote an indignant 
remonstrance to the department for not protesting when 
that country proposed to change its policy and lower the 
duty on the article in question. His branch factory was 
fully established and able to meet competition, but he 



314 AMEKICAN FOREIGN TRADE 

could not see why the Government of the United States 
should be willing that home manufacturers should take 
advantage of this opportunity for trade expansion. It 
was an association of manufacturers which formally de- 
manded that the Government of the United States " com- 
pel " one of the provinces of Canada to repeal its regu- 
lation for a license tax, notwithstanding that the tax was 
required not only from commercial travelers from all 
countries without discrimination, but from the other 
provinces of the dominion as well. 

These instances of the lack of comprehension of the 
proper functions of the Government in relation to trade 
intercourse could be multiplied, but they are of little 
importance in comparison with the discouraging chap- 
ter of foreign-trade forays. How recent is the series of 
indignant reports from American consuls and from spe- 
cial agents of the Department of Commerce which poured 
into Washington on the deficiencies of the American 
manufacturers who were seeking business abroad! 
From the settled commercial centers of Europe, whose 
practices had been fixed for generations, they came. 
From the much sought-after South American market 
they flowed in endless tide. From China and Japan and 
remoter regions of the world where there were oppor- 
tunities to sell American goods they drifted in. 

They were all of the same order. Innumerable in- 
stances of bad packing, with the inevitable indignation 
of consignees and imperative demands for damages ; fail- 
ure to live up to samples, with the consequent disappoint- 
ment of the importers; deficient postage; absolute indif- 
ference to specifications made by the importers with a 
view to meeting local requirements; refusal to fulfil 
orders which had been sought after, but later disregarded 



THE AMERICAN BUSINESS MAN 315 

because, when the order was received, the home market 
had quickened and the articles could be sold at greater 
profit; dumping of second-rate commodities, often an 
accumulated surplus, and oftener inferior stock which 
had to be got rid of, and which it was considered fair 
gain to unload on the hapless foreigner; failure to 
accept repeat orders when an importer had created a 
market for the American goods because renewed indus- 
trial activity had insured a better profit at home; de- 
mands for cash with order when specific agreement had 
been made for credit; indifference to drafts previously 
authorized, and frequently insulting reflections on the 
financial ability and integrity of the consignee! This 
was the chapter. 

There were several causes for this series of consular 
letters and reports. In the first place, the American 
manufacturer who was guilty of these practices still 
looked on foreign orders as something sporadic and spas- 
modic, and only to be sought in order to dispose of sur- 
plus stock. In other words, the foreign field was viewed 
purely as a dumping-ground for temporary purposes. 

Ignorance of packing methods was simply inexcusable. 
Indifference to the trade requirements of other mar- 
kets was partly due to American self-sufficiency. It as- 
sumed that what was suitable to the domestic consumer 
should suit the foreign consumer. There was also mani- 
fest something of the inherent contempt of the provincial 
American for all things foreign. Unfortunately, there 
was not always the highest standard of commercial in- 
tegrity. Sharp practices, which were condoned at home, 
it was assumed would be condoned abroad. 

These criticisms happily related only to certain per- 
sons and to small concerns. They never were true of 



316 AMEEICAN FOKEIGN TRADE 

the half score of great corporations which went into the 
foreign field with the purpose of cultivating it as a per- 
manent market, and which still do the bulk of the export 
business of the United States. These big companies 
did not pack their goods carelessly ; they did not abruptly 
and without explanation fail to fill orders which they 
had sought ; they did not merely dump their surplus, or 
unload on the foreigner second-hand and unsalable 
goods. They sought to meet the local-trade require- 
ments. They studied credit conditions in advance, and 
once having secured customers, they kept them. When 
the active period at home succeeded the dull times, and 
the domestic demand exceeded the capacity, neverthe- 
less they continued to fill their foreign orders. 

It is the big manufacturing companies which have re- 
deemed the American name abroad. A single firm or 
person, by sharp practice or dishonorable methods, and 
by failure to keep engagements made, provokes an outcry 
that causes the reliable firms to be overlooked temporar- 
ily. It is simply the case of evil receiving publicity where 
good is accepted as a matter of course. But though the 
example of the big companies seems to be ignored, this 
is not really so. Their correct methods and their close 
attention to keeping scrupulously their foreign trade 
engagements have laid the deep and solid foundation on 
which the whole structure of American trade abroad may 
be built. 

The individual sinner through persistent reiteration 
of his sins and of the need of reforming his methods may 
be brought to repentance. The educational campaign 
against bad packing, dumping inferior goods, failure to 
live up to agreements, cancellation of orders accepted, 
and the long train of transgressions which justly were 



THE MIERICAN BUSINESS MAN 317 

laid to the door of many American manufacturers is 
bearing fruit. A higher sense of responsibility in deal- 
ing with foreign customers is now shown. Where there 
are shirkers and slackers, the only remedy is to crowd 
them out of foreign trade entirely. 

For the business man who for the first time is seeking 
to sell his goods abroad his aloofness in domestic matters 
becomes one of apprehension in foreign affairs. He is 
literally bewildered, and venturing into untried fields he 
shows his bewilderment. He feels that he does know 
something about home concerns, but when he is adrift in 
the big world he is helpless. 

This sense of isolation is to-day the greatest drawback 
to the American business man who is seeking to obtain 
a share of foreign trade. He lacks the psychological 
sense to place himself in the midst of other and distant 
surroundings. The failure to comprehend foreign cus- 
toms and requirements is due to this lack of insight. 
The business man does not realize that there is another 
world of trade in which the point of view is entirely 
different from his own. The Government, by its numer- 
ous agencies, has tried and is trying to give the American 
business man this sense of the foreign point of view. It 
seeks to take him out of his own environment and set him 
down in an entirely different one thousand of miles 
away, to coordinate its resources with his enterprise. 

The war taught some valuable lessons regarding the 
coordination of the business man's energies with those 
of the Government. They furnish a useful avenue of 
approach to the coordination of government agencies 
in promoting foreign trade. Few business men realize 
the degree to which the Department of State as the me- 
dium of foreign intercourse has been molded to advance 



318 AMERICAN FOREIGN TRADE 

their interests. They have some knowledge of the ac- 
tivities of the Department of Commerce, because the 
name appeals to them. It is barely a decade since an 
appropriation of |50,000 was secured by President 
Roosevelt's administration for developing foreign trade 
through that instrumentality. The pioneer work un- 
der that modest appropriation caused a broad foundation 
to be laid, and a solid one, too, so that now more than 
11,000,000 is annually devoted to this purpose, and every 
part of the world is scoured by experts able to give tech- 
nical as well as general information. The Federal 
Trade Commission has added foreign markets to its func- 
tions, and the Tariff Commission likewise takes excur- 
sions into this inviting field. 

There is much overlapping and duplication in this 
work, but its value, while somewhat obscured by this 
overlapping, is undeniable. What is needed is a clear- 
ing-house to digest all the information gathered and 
make it accessible to the ordinary man. This suggestion 
might be looked upon as an incitement to create another 
board, with all the appurtenant machinery, but that is 
not the purpose. The clearing-house should be com- 
posed of existing bureau officials. Yet, despite the du- 
plication, and notwithstanding the absence of proper di- 
gestive facilities, the value of the work done by the Gov- 
ernment should be appreciated, and business men should 
take advantage of it and coordinate their energies with 
its activities. 

There is the further opportunity for cooperation by 
manufacturers and exporters among themselves. No 
one should minimize the signal service which the great 
exporting corporations have done for American com- 
merce in their perfectly legitimate efforts to extend their 



THE AMERICAN BUSINESS MAN 319 

own business. It is they who have in reality created 
markets for American goods. They are deeply inter- 
ested in all questions of general policy relating to for- 
eign trade, and they are not so strong that the govern- 
ment agencies can be neglected by them. But from the 
large capital at their command, and from the nature of 
corporations, they are fairly able to take care of them- 
selves. In any growth of trade in the future they will 
have their due proportion, but it is the • small manu- 
facturers who, taken as a body, must be the principal 
instrumentalities of enlarged markets. 

Twenty thousand small manufacturers selling their 
goods abroad add enormously to the total sales, yet the 
amount for each individual firm or company may rela- 
tively be so small that it is impossible for it to develop 
an export business for itself, and the individual members 
are timid about venturing by themselves. The remedy 
is in association, in cooperation with their fellows. 
Their feeling of isolation can be overcome by associating 
themselves with other lonesome business men who also 
want to do business abroad. A feeling of confidence 
thus may be created, and the foreign field may cease to be 
one to be desired, but not to be approached through fear 
of rebuffs. What the situation requires is that the 
smaller manufacturers be provided with means for ex- 
porting a certain portion of their products. They have 
the goods, and the problem is to find the market. This 
can be done by cooperation. 

Henceforth world commerce is the business of the Uni- 
ted States. This country is in world politics. It can- 
not, if it would, keep out of world business. Yet there 
are definite limitations on the functions of the govern- 
ment. It can gather and disseminate information of 



320 AMERICAN FOREIGN TRADE 

value to American manufacturers and exporters in their 
quest for world markets. It can exercise the diplomacy 
of commerce in the light of changed world conditions 
and the delicate readjustments to meet them. It is 
bound to have numerous tariff adjustments and prob- 
ably to negotiate an intricate network of trade treaties. 
These treaties will be the foundation of American trade 
policy whenever the American people clearly express 
their views on the trade that follows the war and the 
means the United States shall exercise in obtaining a 
proportionate share of it. 

The promise of the new era, which will be an era of 
competition, is nevertheless of closer relations between 
the civilized nations of the world. The education of the 
American public in international relations as the conse- 
quence of the Great War carries with it the prospect of 
a wide popular education in regard to commerce with 
other countries. The business man has his part in this 
education. His first step should be to educate himself 
in what constitutes the essentials of foreign trade and 
the conditions under which it may be fostered. This 
done, he will be in a position to help the education of 
those who are not directly interested, but who have the 
indirect interest that comes from the effect of enlarged 
foreign markets on domestic prosperity. 

Back of it all must be cooperation of the business men 
among themselves and coordination with the Govern- 
ment. There must be recognition that the American 
business character finds its strongest expression in indi- 
vidual enterprise and in initiative of its own. Where 
other governments are tending toward a larger measure 
of actual participation in the enterprises of their nation- 
als, the United States should remain as the exemplar of 



THE AMERICAN BUSINESS MAN 321 

individualism in international business. That is real 
democracy. It is the enduring foundation for expanding 
American trade in the new era of international com- 
merce. 



APPENDIX 

A — RECIPROCITY AND RETALIATORY TARIFF 
PROVISIONS 

1 — MCKINLEY ACT OP OCTOBER 1, 1890 

Sec. 3. That with a view to secure reciprocal trade with 
countries producing the following articles, and for this pur- 
pose, on and after the first day of January eighteen hundred 
and ninety-two, whenever, and so often as the President shall 
be satisfied that the Government of any country producing 
and exporting sugars, molasses, coffee, tea, and hides, raw 
and uncured, or any of such articles, imposes duties or other 
exactions upon the agricultural or other products of the 
United States, which in view of the free introduction of such 
sugar, molasses, coffee, tea, and hides into the United States 
he may deem to be reciprocally unequal and unreasonable, he 
shall have the power and it shall be his duty to suspend, by 
proclamation to that effect, the provisions of this act relating 
to the free introduction of such sugar, molasses, coffee, tea, 
and hides, the production of such country for such time as 
he shall deem just, and in such case and during such sus- 
pension duties shall be levied, collected, and paid upon sugar, 
molasses, coffee, tea, and hides, the product of or exported 
from such designated country as follows, namely: 

All sugars not above number thirteen Dutch standard in 
color shall pay duty on their polariscopic tests as foUows, 
namely ; 

All sugars not above number thirteen Dutch standard in 
color, all tank bottoms, sirups of cane juice or of beet juice, 
melada, concentrated melada, concrete and concentrated mo- 
lasses, testing by the polariscope not above seventy-five de- 
grees, seven-tenths of one cent per pound; and for every ad- 

322 



APPENDIX 323 

dition degree or fraction of a degree shown by the polar- 
iscopic test, two hundredths of one cent per pound additional. 

All sugars above number thirteen Dutch standard in color 
shall be classified by the Dutch standard of color, and pay 
duty as follows, namely: All sugar above number thirteen 
and not above number sixteen Dutch standard of color, one 
and three-eighths cents per pound. 

All sugars above number sixteen and not above number 
twenty Dutch standard of color, one and five-eighths cents per 
pound. 

All sugars above number twenty Dutch standard of color, 
two cents per pound. 

Molasses testing above fifty-six degrees, four cents per gal- 
Ion. 

Sugar drainings and sugar sweepings shall be subject to 
duty either as molasses or sugar, as the case may be, accord- 
ing to polariscopic test. 

On coffee, three cents per pound. 

On tea, ten cents per pound. 

Hides, raw or uncured, whether dry, salted, or pickled, 
Angora goatskin, raw, without the wool, unmanufactured, 
asses' skins, raw or unmanufactured, and skins, except sheep- 
skins, with the wool on, one and one-half cents per pound. 

2 — DINGLEY ACT OF JULY 24, 1897 

Sec, 3. That for the purpose of equalizing the trade of the 
United States with foreign countries, and their colonies, pro- 
ducing and exporting to this country the following articles: 
Argols, or crude tartar, or wine lees, crude; brandies, or 
other spirits manufactured or distilled from grain or other 
materials; champagne and all other sparkling wines; still 
wines and vermuth; paintings and statuary; or any of them, 
the President be, and he is hereby, authorized, as soon as may 
be after the passage of this Act, and from time to time there- 
after, to enter into negotiations with the governments of those 
countries exporting to the United States the above-mentioned 
articles, or any of them, with a view to the arrangement of 
commercial agreements in which reciprocal and equivalent 
concessions may be secured in favor of the products and man- 



324 AMERICAN FOREIGN TRADE 

ufactures of the United States; and whenever the govern- 
ment of any country, or colony, producing and exporting to 
the United States the above-mentioned articles, or any of 
them, shall enter into a commercial agreement with the United 
States, or make concessions in favor of the products, or manu- 
factures thereof, which, in the judgment of the President, 
shall be reciprocal and equivalent, he shall be, and he is 
hereby, authorized and empowered to suspend, during the 
time of such agreement or concession, by proclamation to that 
effect, the imposition and collection of the duties mentioned 
in this Act, on such article or articles so exported to the 
United States from such country or colony, and thereupon 
and thereafter the duties levied, collected, and paid upon 
such article or articles shall be as follows, namely: 

Argols, or crude tartar, or wine lees, crude, five per centum 
ad valorem. 

Brandies, or other spirits manufactured or distilled from 
grain or other materials, one dollar and seventy-five cents 
per proof gallon. 

Champagne and all other sparkling wines, in bottles con- 
taining not more than one quart and more than one pint, 
six dollars per dozen ; containing not more than one pint each 
and more than one-half pint, three dollars per dozen; con- 
taining one-half pint each or less, one dollar and fifty cents 
per dozen; in bottles or other vessels containing more than 
one quart each, in addition to six dollars per dozen bottles on 
the quantities in excess of one quart, at the rate of one dollar 
and ninety cents per gallon. 

Still wines, and vermuth, in casks, thirty-five cents per 
gallon; in bottles or jugs, per case of one dozen bottles or 
jugs containing each not more than one quart and more than 
one pint, or twenty-four bottles or jugs containing each not 
more than one pint, one dollar and twenty-five cents per case, 
and any excess beyond these quantities found in such bottles 
or jugs shall be subject to a duty of four cents per pint or 
fractional part thereof but no separate or additional duty 
shall be assessed upon the bottles or jugs. 

Paintings in oil or water colors, pastels, pen and ink draw- 
ings, and statuary, fifteen per centum ad valorem. 



APPENDIX 325 

The President shall have power, and it shall be his duty, 
whenever he shall be satisfied that any such agreement in 
this Section mentioned is not being fully executed by the 
Government with which it shall have been made, to revoke 
such suspension and notify such Government thereof. 

And it is further provided that with a view to secure 
reciprocal trade with countries producing the following ar- 
ticles, whenever and so often as the President shall be satisfied 
that the Government of any country, or colony of such Gov- 
ernment, producing and exporting directly or indirectly to 
the United States coffee, tea, and tonquin, tonqua, or tonka 
beans, and vanilla beans, or any such articles, imposes duties 
or other exactions upon the agricultural, manufactured, or 
other products of the United States, which, in view of the 
introduction of such coffee, tea, and tonquin, tonqua, or tonka 
loeans, and vanilla beans, into the United States, as in this 
Act hereinbefore provided for, he may deem to be recipro- 
cally unequal and unreasonable, he shall have the power 
and it shall be his duty to suspend, by proclamation to that 
effect, the provisions of this Act relating to the free intro- 
duction of such coffee, tea, and tonquin, tonqua, or tonka 
beans, and vanilla beans, of the products of such country or 
colony for such time as he shall deem just; and in such case 
and during such suspension duties shall be levied, collected, 
and paid upon coffee, tea, and tonquin, tonqua, or tonka 
beans, and vanilla beans, the products or exports, direct or 
indirect, from such designated country, as follows: 

On coffee, three cents per pound. 

On tea, ten cents per pound. 

On tonquin, tonqua, or tonka beans, fifty cents per pound ; 
vanilla beans, two dollars per pound; vanilla beans, com- 
mercially known as cuts, one dollar per pound. 

Sec. 4. That whenever the President of the United States, 
by and with the advice and consent of the Senate, with a 
view to secure reciprocal trade with foreign countries, shall, 
within the period of two years from and after the passage of 
this Act, enter into commercial treaty or treaties with any 
other country or countries concerning the admission into 
any such country or countries of the goods, wares, and mer- 



326 AMERICAN FOREIGN TRADE 

chandise of the United States and their use and disposition 
therein, deemed to be for the interests of the United States, 
and in such treaty or treaties, in consideration of the ad- 
vantages accruing to the United States therefrom shall pro- 
vide for the reduction during a specified period, not exceeding 
five years, of the duties imposed by this Act, to the extent of 
not more than twenty per centum thereof, upon such goods, 
wares, or merchandise as may be designated therein of the 
country or countries with which such treaty or treaties shall 
be made as in this section provided for; or shall provide for 
the transfer during such period from the dutiable list of this 
Act to the free list thereof of such goods, wares, and mer- 
chandise, being the natural products of such foreign country 
or countries and not of the United States; or shall provide 
for the retention upon the free list of this Act during a 
specified period, not exceeding five years, of such goods, wares, 
and merchandise now included in said free list as may be 
designated therein; and when any such treaty shall have 
been duly ratified by the Senate and approved by Congress, 
and public proclamation made accordingly, then and there- 
after the duties which shall be collected by the United States 
upon any of the designated goods, wares, and merchandise 
from the foreign country with which such treaty has been 
made shall, during the period provided for, be the duties 
specified and provided for in such treaty, and none other. 

3 — PROPOSED KNOX AMENDMENT TO TARIFF OF 1909 

Be it enacted. That section two of an act entitled '* An act 
to provide revenue, equalize duties, and encourage the in- 
dustries of the United States, and for other purposes," be, 
and is hereby, amended so as to read as follows : 

* ' Sec. 2. That from and after the passage of this act, and 
so long thereafter as the President of the United States shall 
be satisfied that the government of any foreign country im- 
poses any terms or restrictions, either in the way of tariff 
rates or provisions, trade or other regulations charges, ex- 
actions, or in any other manner, directly or indirectly, upon 
the importation into or the sale in such foreign country of 
any agricultural, manufactured, or other product of the 



APPENDIX 327 

United States, which unduly discriminate against the United 
States or the products thereof, and that such foreign 
country pays no export bounty or imposes no export duty or 
prohibition upon the exportation of any article to the United 
States which unduly discriminates against the United States 
or the products thereof, and that such foreign country ac- 
cords to the agricultural, manufactured, or other products of 
the United States treatment which is reciprocal and equiva- 
lent, all articles when imported into the United States, or 
any of its possessions (except the Philippine Islands and the 
islands of Guam and Tutuila), from such foreign country 
shall be admitted under the terms of the minimum tariff of 
the United States as prescribed by section one of the tariff act 
of August fifth, nineteen hundred and nine. Any proclama- 
tion issued by the President under the authority herein con- 
ferred and the application of the minimum or other tariff 
rates may, in accordance with the facts as found by the Presi- 
dent, extend to the whole of any foreign country, or may be 
confined to or exclude from its effect any dependency, colony, 
or other particular subdivision having authority to adopt and 
enforce tariff legislation, or to impose restrictions or regula- 
tions, or to grant concessions upon the exportation or impor- 
tation of articles which are, or may be, imported into the 
United States : Provided, That whenever the President of the 
United States shall be satisfied that the conditions with respect 
to any country, which led to the application of the minimum 
tariff hereinafter authorized, no longer exist, or that the gov- 
ernment of any foreign state, by repressive, discriminatory, or 
confiscatory measures, either of legislation or of administra- 
tion, jeopardizes, impairs, or destroys the capital of citizens of 
the United States legitimately invested in such foreign state ; 
or whenever the President shall be satisfied that new dis- 
criminations are made or that relative treatment not equiva- 
lently favorable is given by or under the authority of any 
foreign state adversely affecting the importation into or sale 
in such foreign state of any product of the United States ; or 
that the government of such foreign state, whether by law or 
by administrative measures, imposes exactions, regulations or 
limitations restrictive of or harmful or amounting to relative 



328 AMEKICAN FOKEIGI^ TRADE 

treatment not equivalently favorable to tlie commerce of the 
United Etates with, such foreign state with respect to the 
imports into or exports from such state ; or if a foreign state, 
with respect to its exports to other foreign or neutral markets, 
seeks by law or by administrative measures, to provide for the 
payment of bounties, rebates of duties or allowance upon ex- 
ports in such a manner as to affect adversely the commerce of 
the United States established with foreign or neutral markets, 
he shall direct that such increased ad valorem rates of duty as 
he shall determine are equivalent to the injury inflicted upon 
American capital or commerce shall be imposed upon imports 
of all or such duty-free products of such foreign state as he 
may deem proper, provided that in no case shall the additional 
duty so imposed be less than five per centum nor more than 
twenty-five per centum ad valorem ; or he may direct that the 
like ad valorem rates of duty shall be imposed upon importa- 
tions of all such duty-free products of such foreign state as he 
may deem proper, or upon both dutiable and duty-free 
importations, or, in what the President shall be satisfied 
are extreme cases of new discrimination and unjust 
treatment of the commercial or foreign interests of 
citizens of the United States on the part of such foreign 
state, he may direct that such products of such foreign state 
as he may deem proper shall be excluded from importation to 
the United States ; that whenever the President shall be satis- 
fied that any of the above-described conditions exists he shall 
issue a proclamation to this effect, and ninety days thereafter 
all the dutiable imports into the United States from the 
offending foreign state, or such of the dutiable products as are 
named in the proclamation, being the product of such foreign 
state, shall be subject to the increased rates of duty specified 
in the proclamation ; or in the case of duty-free imports from 
such foreign state, all such imports or such of them as are 
named in the proclamation, being the product of the offending 
foreign state, shall become dutiable at the rates of duty speci- 
fied in the proclamation ; or, in the case of the prohibition of 
importation, such articles of merchandise as the President 
shall have selected and named in his proclamation, being the 
product of the said offending foreign state, shall not be en- 



APPENDIX 329 

titled to entry at any of the ports of the United States, and 
the importation thereof shall be prohibited. All articles of 
merchandise imported contrary to this act shall be forfeited to 
the United States, and shall be liable to be seized, prosecuted, 
and condemned, in like manner and under the same regula- 
tions, restrictions, and provisions as have been heretofore es- 
tablished for the recovery, collection, distribution, and remis- 
sion of forfeitures to the United States by the several revenue 
laws. Whenever the provisions of this act shall be applicable 
to importations into the United States of the products of any 
foreign state, they shall be applicable thereto whether such 
products are imported directly from the country of produc- 
tion or otherwise. The President may at any time by procla- 
mation, which shall be effective upon a date to be specified 
therein, revoke, modify, terminate, or renew any such direc- 
tion hereinbefore authorized as, in his opinion, the public in- 
terest may require. To secure information to assist the Presi- 
dent in the discharge of the duties imposed upon him by this 
section and the officers of the Government in the administra- 
tion of the customs laws, the President is hereby authorized to 
employ such persons as may be required. ' ' 

Nothing in this act contained shall be so construed as to 
abrogate or in any manner impair or affect the provisions of 
any act of Congress to promote the reciprocal trade relations 
of the United States with another country. 

4 — REJECTED PROVISION OF THE UNDERWOOD BILL OF 1913 

That whenever the President shall ascertain as a fact that 
any country, dependency, colony, province, or other political 
subdivision of government imposes any restrictions, either in 
the way of tariff rates or provisions, trade or other regula- 
tions, charges or exactions, or in any other manner, directly 
or indirectly, upon the importations into or sale in such foreign 
country of any agricultural, manufactured, or other product 
of the United States which unduly or unfairly discrimi^iates 
against the United States or the products thereof; or when- 
ever he shall ascertain as a fact that any such country, de- 
pendency, colony, province, or other political subdivision of 
government imposes any restriction or prohibition upon the 



330 AMERICAN FOREIGN TRADE 

exportation of any article to the TJmted States which unduly 
or unfairly discriminates against the United States; or when- 
ever he shall ascertain as a fact that any such country, de- 
pendency, colony, province, or other political subdivision of 
government does not accord to the products of the United 
States reciprocal and equal or equivalent treatment, he shall 
have the power and it shall he his duty to suspend hy procl<i- 
mation the operation of the provisions of this Act relative to 
the rates of duty to he assessed upon the importation of the 
following specified articles, or such of them as he may deem 
just and applicahle, and to substitute therefor the rates of 
duty hereinafter prescribed upon such articles when imported 
directly or indirectly from such country, dependency, colony, 
province or other political subdivision of government: 

Fish, fresh, smoked, and dried, pickled, or otherwise pre- 
pared; coffee; tea; lime; earthen, stone, and china ware; 
lemons; coal, bituminous culm slack and shale and composi- 
tions used for fuel in which coal and coal dust is the com- 
ponent material of chief value whether in briquets or other 
form; cheese; wines of all kinds; malt liquors; knitted goods; 
silk dresses and silk goods; leather gloves; laces and em- 
broideries, of whatever material composed, and articles made 
wholly or in part of the same; toys; jewelry, precious and 
semiprecious and imitation precious stones, suitable for use 
in the manufacture of jewelry; sugars, tank bottoms, sirup of 
cane juice and concentrated molasses, testing hy the polari- 
scope not above seventy-fwe degrees; molasses; wool; vege- 
table oils. 

On the issuance of such proclamation and until its revoca- 
tion there shall be levied, collected, and paid upon all articles 
covered thereby, when imported directly or indirectly from 
the place mentioned therein, the following rates: 

On fish, fresh, smoked, and dried, pickled, or otherwise pre- 
pared, 1 cent per pound; on coffee, 3 cents per pound; on tea, 
10 cents per pound; lime, 10 per centum ad valorem; on the 
following articles one and one-fourth times the rate specified 
in section one of this Act, namely, on earthen, stone, and 
china ware; expressed oils; lemons; cheese; wines of all kinds; 
malt liquors; knitted goods; silk d/resses and silk goods; 



APPENDIX 331 

leather gloves; laces and embroideries, of whatever material 
composed f aiid articles made wholly or in part of the same; 
toys; jewelry and precious, semiprecious, and imitation pre- 
ciaus stones, suitable for use in the manufacture of jewelry. 
On the folloiving, in addition to the duties as provided in sec- 
tion one of this Act, the duties specified below: 

On sugars, tank bottoms, sirup of cane juice and concen- 
trated molasses, testing by the polariscope not above seventy- 
five degrees, fifteen-hundredths cent per pound, and for every 
additional degree by the polariscope test, one one-hundredth 
cent per pound; on molasses, 2 cents per gallon. 

On wool of the sheep, hair of the Angora goat, alpaca and 
other like animuls, and, all wools and hair on the skins of such 
animals, and all wool wastes by whatever description known, 
15 per centum ad valorem. 

On coal, bituminous, and shale, 45 cents per ton of twenty- 
eight bushels, eighty pounds to the bushel; coal slack or culm, 
such as will pass through a half-inch screen, and briquets of 
which coal and coal dust is the component part of chief value, 
15 cents per ton of twenty-eight bushels, eighty pounds to the 
bushel. 

And the President may provide for drawbacks for the re- 
funding of the duty paid upon any such coal, culm, or slack 
imported for the purpose of being used for fuel upon vessels 
propelled by steam and engaged in trade with foreign coun- 
tries or between Atlantic and Pacific ports of the United 
States and which vessels are registered under the laws of the 
United States. 

That whenever the President shall ascertain as a fact that 
such restriction or prohibition or lack of accord of reciprocal 
and equivalent treatment has ceased, he shall have the power 
and it shall be his duty to revoke such proclamation, where- 
upon the articles covered thereby, when imported from the 
place mentioned therein, shall pay the rates of duty otherwise 
provided by law. But this provision shall not be applicable 
beyond the period of three years after the date of the passage 
of this Act unless Congress shall otherwise prescribe. 



332 AMERICAN FOREIGN TRADE 

B — HAITIAN FISCAL PROTECTORATE TREATY 
(Proclaimed May 3, 1916) 

ARTICLE I 

The Government of the United States will, by its good offices, 
aid the Haitian Government in the proper and efficient de- 
velopment of its agricultural, mineral and commercial re- 
sources and in the establishment of the finances of Haiti on a 
firm and solid basis. 

ARTICLE n 

The President of Haiti shall appoint, upon nomination by 
the President of the United States, a General Receiver and 
such aids and employees as may be necessary, who shall collect, 
receive and apply all customs duties on imports and exports 
accruing at the several custom houses and ports of entry of 
the Republic of Haiti. 

The President of Haiti shall appoint, upon nomination by 
the President of the United States, a Financial Adviser, who 
shall be an officer attached to the Ministry of Finance, to give 
effect to whose proposals and labors the Minister will lend 
efficient aid. The Financial Adviser shall devise an adequate 
system of public accounting, aid in increasing the revenues 
and adjusting them to the expenses, inquire into the validity 
of the debts of the Republic, enlighten both Governments with 
reference to all eventual debts, recommend improved methods 
of collecting and applying the revenues, and make such other 
recommendations to the Minister of Finance as may be deemed 
necessary for the welfare and prosperity of Haiti. 

ARTICLE ni 
The Government of the Republic of Haiti will provide by 
law or appropriate decrees for the payment of all customs 
duties to the General Receiver, and will extend to the Receiv- 
ership, and to the Financial Adviser, all needful aid and full 
protection in the execution of the powers conferred and duties 
imposed herein ; and the United States on its part will extend 
like aid and protection. 



APPENDIX 333 

ARTICLE IV 

Upon the appointment of the Financial Adviser, the Gov- 
ernment of the Republic of Haiti, in cooperation with the 
Financial Adviser, shall collate, classify, arrange and make 
full statement of all the debts of the Republic, the amounts, 
character, maturity and condition thereof, and the interest 
accruing and the sinking fund requisite to their final dis- 
charge. 

ARTICLE v 

All sums collected and received by the General Receiver 
shall be applied, first, to the payment of the salaries and allow- 
ances of the General Receiver, his assistants and employees 
and expenses of the Receivership, including the salary and 
expenses of the Financial Adviser, which salaries will be de- 
termined by previous agreement; second, to the interest and 
sinking fund of the public debt of the Republic of Haiti ; and, 
third, to the maintenance of the constabulary referred to in 
Article X, and then the remainder to the Haitian Government 
for purposes of current expenses. 

In making these applications the General Receiver will pro- 
ceed to pay salaries and allowances monthly and expenses as 
they arise, and on the first of each calendar month, will set 
aside in a separate fund the quantum of the collection and 
receipts of the previous month. 

ARTICLE VI 

The expenses of the Receivership, including salaries and 
allowances of the General Receiver, his assistants and em- 
ployees, and the salary and expenses of the Financial Ad- 
viser, shall not exceed five per centum of the collections and 
receipts from customs duties, unless by agreement by the two 
Governments. 

ARTICLE vn 

The General Receiver shall make monthly reports of all col- 
lections, receipts and disbursements to the appropriate officer 
of the Republic of Haiti and to the Department of State of 
the United States, which reports shall be open to inspection 
and verification at all times by the appropriate authorities 
of each of the said Governments. 



334 AMERICAN FOREIGN TRADE 

ARTICLE VIII 

The Republic of Haiti shall not increase its public debt 
except by previous agreement with the President of the 
United States, and shall not contract any debt or assume any 
financial obligation unless the ordinary revenues of the Re- 
public available for that purpose, after defraying the ex- 
penses of the Government, shall be adequate to pay the inter- 
est and provide a sinking fund for the final discharge of 
such debt. 

ARTICLE JX 

The Republic of Haiti will not without a previous agree- 
ment with the President of the United States, modify the 
customs duties in a manner to reduce the revenues there- 
from; and in order that the revenues of the Republic may 
be adequate to meet the public debt and the expenses of the 
Government, to preserve tranquillity and to promote material 
prosperity, the Republic of Haiti will cooperate with the 
Financial Adviser in his recommendations for improvement 
in the methods of collecting and disbursing the revenues and 
for new sources of needed income. 

ARTICLE X 

The Haitian Government obligates itself, for the preserva- 
tion of domestic peace, the security of individual rights and 
full observance of the provisions of this treaty, to create with- 
out delay an efficient constabulary, urban and rural, composed 
of native Haitians. This constabulary shall be organized and 
officered by Americans, appointed by the President of Haiti, 
upon nomination by the President of the United States. The 
Haitian Government shall clothe these officers with the proper 
and necessary authority and uphold them in the performance 
of their functions. These officers will be replaced by Haitians 
as they, by examination, conducted under direction of a board 
to be selected by the senior American officer of this constabu- 
lary and in the presence of a representative of the Haitian 
Government, are found to be qualified to assume such duties. 
The constabulary herein provided for, shall, under the direc- 
tion of the Haitian Government, have supervision and control 
of arms and ammunition, military supplies, and traffic therein, 



APPENDIX 335 

throughout the country. The high contracting parties agree 
that the stipulations in this Article are necessary to prevent 
factional strife and disturbances. 

ARTICLE XI 

The Government of Haiti agrees not to surrender any of 
the territory of the Eepublic of Haiti by sale, lease, or other- 
wise, or jurisdiction over such territory, to any foreign gov- 
ernment or power, nor to enter into any treaty or contract 
with any foreign power or powers that will impair or tend to 
impair the independence of Haiti. 

ARTICLE XII 

The Haitian Government agrees to execute with the United 
States a protocol for the settlement, by arbitration or other- 
wise, of all pending pecuniary claims of foreign corporations, 
companies, citizens or subjects against Haiti. 

ARTICLE XIII 

The Republic of Haiti, being desirous to further the develop- 
ment of its natural resources, agrees to undertake and execute 
such measures as in the opinion of the high contracting parties 
may be necessary for the sanitation and public improvement 
of the Republic, under the supervision and direction of an 
engineer or engineers, to be appointed by the President of 
Haiti upon nomination by the President of the United States, 
and authorized for that purpose by the Government of Haiti. 

ARTICLE XIV 

The high contracting parties shall have authority to take 
such steps as may be necessary to insure the complete attain- 
ment of any of the objects comprehended in this treaty; and, 
should the necessity occur, the United States will lend an effi- 
cient aid for the preservation of Haitian Independence and 
the maintenance of a government adequate for the protection 
of life, property and individual liberty. 

ARTICLE XV 

The present treaty shall be approved and ratified by the 
high contracting parties in conformity with their respective 



336 AMERICAN FOREIGN TRADE 

laws, and the ratifications thereof shall be exchanged in the 
City of Washington as soon as may be possible. 

ARTICLE XVI 

The present treaty shall remain in full force and virtue for 
the term of ten years, to be counted from the day of exchange 
of ratifications, and further for another term of ten years if, 
for specific reasons presented by either of the high contracting 
parties, the purpose of this treaty has not been fully ac- 
complished. 

C — CHINA AND THE PACIFIC 

1 — OPEN- DOOR POLICY 
SECRETARY HAY TO MINISTER BUCK 

This Government, animated with a sincere desire to insure 
to the commerce and industry of the United States and of all 
other nations perfect equality of treatment within the limits 
of the Chinese Empire for their trade and navigation, espe- 
cially within the so-called '* spheres of influence or interest '* 
claimed by certain European powers in China, has deemed 
the present an opportune moment to make representations in 
this direction to Germany, Great Britain, and Russia. 

To obtain the object it has in view and to remove possible 
causes of international irritation and reestablish confidence so 
essential to commerce, it has seemed to this Government highly 
desirable that the various powers claiming ^' spheres of inter- 
est or influence '* in China should give formal assurances 
that — 

First. They will in no way interfere with any treaty port 
or any vested interest within any so-called " sphere of inter- 
est ' ' or leased territory they may have in China. 

Second. The Chinese treaty tariff of the time being shaU 
apply to all merchandise landed or shipped to all such ports 
as are within said '' sphere of interest " (unless they be 
" free ports "), no matter to what nationality it may belong, 
and that duties so leviable shall be collected by the Chinese 
Government. 

Third. They will levy no higher harbor dues on vessels of 
another nationality frequenting any port in such '* sphere " 



APPENDIX 337 

than shall be levied on vessels of their own nationality, and 
no higher railroad charges over lines built, controlled, or 
operated within such " sphere " on merchandise belonging to 
citizens or subjects of other nationalities transported through 
such '' sphere *' than shall be levied on similar merchandise 
belonging to their own nationals transported over equal dis- 
tances. 

The policy pursued by His Imperial German Majesty in 
declaring Tsingtao (Kiaochao) a free port and in aiding the 
Chinese Government in establishing there a custom-house, and 
the ukase of His Imperial Russian Majesty of August 11 last 
in erecting a free port at Dalny (Talienwan) are thought to 
be proof that these powers are not disposed to view unfavor- 
ably the proposition to recognize that they contemplate noth- 
ing which wiU interfere in any way with the enjoyment by 
the commerce of all nations of the rights and privileges guar- 
anteed to them by existing treaties with China. 

Repeated assurances from the British Government of its 
fixed policy to maintain throughout China freedom of trade 
for the whole world insure, it is believed, the ready assent of 
that power to our proposals. It is no less confidently believed 
that the commercial interests of Japan would be greatly served 
by the above-mentioned declaration, which harmonizes with 
the assurances conveyed to this Government at various times 
by His Imperial Japanese Majesty's diplomatic representative 
at this capital. 

You are therefore instructed to submit to His Imperial 
Japanese Majesty's Government the above considerations, and 
to invite their early attention to them, and express the earnest 
hope of your Government that they will accept them and aid 
in securing their acceptance by the other interested powers. 
I am, etc., John Hay. 

VISCOUNT AOKI TO MR. BUCK 

[Translation.] 
Department of Foreign Affairs, 
Tokio, {he 26th day, the 12th month of the 32d year of Meiji. 

(December 26, 1899.) 
Mr. Minister : I have the honor to acknowledge the receipt 



338 AMEEICAN FOREIGN TRADE 

of the note No. 176 of tlie 20th instant, in which, pursuing 
the instructions of the United States Government, your ex- 
cellency was so good as to communicate to the Imperial Gov- 
ernment the representations of the United States as presented 
in notes to Russia, Germany, and Great Britain on the subject 
of commercial interests of the United States in China. 

I have the happy duty of assuring your excellency that the 
Imperial Government will have no hesitation to give their 
assent to so just and fair a proposal of the United States, pro- 
vided that all the other powers concerned shall accept the 
same. 

I avail myself, etc., 

Viscount Aoki Srozo, 
Minister for Foreign Affcmrs, 

2 — root-takahiba declaeation 

impeeiaii japanese embassy 
washington 

November 30, 1908. 
Sm: 

The exchange of views between us, which has taken place 
at the several interviews which I have recently had the honor 
of holding with you, has shown that Japan and the United 
States holding important outlying insular possessions in the 
region of the Pacific Ocean, the Governments of the two coun- 
tries are animated by a common aim, policy, and intention 
in that region. 

Believing that a frank avowal of that aim, policy, and in- 
tention would not only tend to strengthen the relations of 
friendship and good neighborhood, which have inunemoriaUy 
existed between Japan and the United States, but would ma- 
terially contribute to the preservation of the general peace, 
the Imperial Government have authorized me to present to 
you an outline of their understanding of that common aim, 
policy, and intention: 

1. It is the wish of the two Governments to encourage the 
free and peaceful development of their commerce on the 
Pacific Ocean. 

2. The policy of both Governments, uninfluenced by any 



APPENDIX 339 

aggressive tendencies, is directed to the maintenance of the 
existing status quo in the region above mentioned and to the 
defense of the principle of equal opportunity for commerce 
and industry in China. 

3. They are accordingly firmly resolved reciprocally to re- 
spect the territorial possessions belonging to each other in said 
region. 

4. They are also determined to preserve the common inter- 
est of all powers in China by supporting by all pacific means 
at their disposal the independence and integrity of China and 
the principle of equal opportunity for commerce and industry 
of all nations in that Empire. 

5. Should any event occur threatening the status quo as 
above described or the principle of equal opportunity as above 
defined, it remains for the two Governments to communicate 
with each other in order to arrive at an understanding as to 
what measures they may consider it useful to take. 

If the foregoing outline accords with the view of the Gov- 
ernment of the United States, I shall be gratified to receive 
your confirmation. 

I take this opportunity to renew to Your Excellency the as- 
surance of my highest consideration. 

K. Takahiba. 
Honorable Elihu Root, 

Secretary of State. 

3 — LANSING-ISHn AGREEMENT 

[The Secretary of State to the Ambassador Extraordinary 
and Plenipotentiary of Japan, on Special Mission.] 

Department op State, 
Washington, November 2, 1917. 
Excellency : 

I have the honor to communicate herein my understanding 
of the agreement reached by us in our recent conversations 
touching the questions of mutual interest to our Governments 
relating to the Republic of China. 

In order to silence the mischievous reports that have from 
time to time been circulated, it is believed by us that a pub- 
lic announcement once more of the desires and intentions 



340 AMERICAN FOEEIGN TRADE 

shared by our two Governments with regard to China is ad- 
visable. 

The Governments of the United States and Japan recog- 
nize that territorial propinquity creates special relations be- 
tween countries, and, consequently, the Government of the 
United States recognizes that Japan has special interests in 
China, particularly in the part to which her possessions are 
contiguous. 

The territorial sovereignty of China, nevertheless, remains 
unimpaired and the Government of the United States has 
every confidence in the repeated assurances of the Imperial 
Japanese Government that while geographical position gives 
Japan such special interests they have no desire to discrimi- 
nate against the trade of other nations or to disregard the 
commercial rights heretofore granted by China in treaties 
with other powers. 

The Governments of the United States and Japan deny 
that they have any purpose to infringe in any way the inde- 
pendence or territorial integrity of China and they declare 
furthermore, that they always adhere to the principle of the 
so-called '' Open Door " or equal opportunity for commerce 
and industry in China. 

Moreover, they mutually declare that they are opposed to 
the acquisition by any Government of any special rights or 
privileges that would affect the independence or territorial 
integrity of China or that would deny to the subjects or citi- 
zens of any country the full enjoyment of equal opportunity 
in the commerce and industry of China. 

I shall be glad to have Your Excellency confirm this under- 
standing of the agreement reached by us. 

Accept, Excellency, the renewed assurance of my highest 
consideration. 

Robert Lansing 



APPENDIX 341 

His Excellency 

Viscount KiKUjmo Ishii, 

Ambassador Extraordinary and Plenipo- 
tentiary of Japan, on Special Mission. 
[The Ambassador Extraordinary and Plenipotentiary of Ja- 
pan, on Special Mission, to the Secretary of State.] 
The Special Mission of Japan, 
Washington, November 2, 1917, 

Sir: I have the honor to acknowledge the receipt of your 
note of to-day, communicating to me your understanding of 
the agreement reached by us in our recent conversations 
touching the questions of mutual interest to our Govern- 
ments relating to the Republic of China. 

I am happy to be able to confirm to you, under authoriza- 
tion of my Government, the understanding in question set 
forth in the following terms: 

In order to silence mischievous reports that have from time 
to time been circulated, it is believed by us that a public an- 
nouncement once more of the desires and intentions shared 
by our two Governments with regard to China is advisable. 

The Governments of Japan and the United States recog- 
nize that territorial propinquity creates special relations be- 
tween countries, and, consequently, the Government of the 
United States recognizes that Japan has special interests in 
China, particularly in the part to which her possessions are 
contiguous. 

The territorial sovereignty of China, nevertheless, remains 
unimpaired and the Government of the United States has 
every confidence in the repeated assurances of the Imperial 
Japanese Government that while geographical position gives 
Japan such special interests they have no desire to discrimi- 
nate against the trade of other nations or to disregard the 
commercial rights heretofore granted by China in treaties 
with other Powers. 

The Governments of Japan and the United States deny 
that they have any purpose to infringe in any way the inde- 
pendence or territorial integrity of China and they declare, 
furthermore, that they always adhere to the principle of the 



342 AMERICAN FOREIGN TRADE 

so-called *' Open Door " or equal opportunity for commerce 
and industry in China. 

Moreover, they mutually declare that they are opposed to 
the acquisition by any government of any special rights or 
privileges that would affect the independence or territorial 
integrity of China or that would deny to the subjects or citi- 
zens of any country the full enjoyment of equal opportunity 
in the commerce and industry of China. 

I take this opportunity to convey to you, Sir, the assurances 
of my highest consideration. 

K. ISHH 

Ambassador Extraordinary and Plenipotentiary 

of Japan on Special Mission. 
Honorable Robert Lansing, 

Secretary of State. 



INDEX 



Adams, John Q., quoted on favored 

nations, 121 
Agriculture, in relation to foreign 

trade, 7-32 
"Agricultural Year Book, 1918," 

cited, 22-28 
Alabama, 48 
Algeria, 60, 154 
Alliances, Economic, cited, 74 
America. See United States 
"American Trade Policy," cited, 

79 
Anglo-Chinese Commercial Treaty, 

289 
Anglo-French Treaty (Cobden 

Treaty), quoted, 81 
Anglo-Japanese Treaty, 89 et seq., 

274 
Aoki, Viscount, letter of, quoted, 

337, 338 
Argentine Republic, 9, 10, 100, 

144; as an economic ideal, 192, 

193, 201 ; population of, 204 
Arthur, Chester A., 112, 302 
Asia Minor: possibilities of, in 

cotton production, 28 
Asquith, Premier: attitude of, to- 
ward public houses, 40; quoted 

on free trade, 93, 94 
Australia, 31, 60, 87, 93, 97, 99, 

100 
Austria-Hungary, 83, 113, 144 

Bagdad Railway, The, 72 
Balfour, Arthur J., attitude of, to- 
ward England's tariff policy, 94 
Balfour Commission, The, 96 
Balkan States, 154, 171 
Barcelona, 87 
Barker, J. Ellis, "Britain's Com- 



343 



ing Industrial Supremacy," 
cited, 55 

Bathurst, Lord, 90 

Beaulieu, Pierre Leroy : " The 
United States in the Twentieth 
Century," by, quoted, 140, 141; 
283 

Belgium: German Army in, 55; 
144, 212, 226 

Bingham, Mr., 122 

Birmingham, 9, 49, 57 

Blaine, James G. : attitude of, to- 
ward foreign trade, 11; 92; com- 
mercial policy of, 112 et seq.; 
117; attitude of, toward South- 
American trade, 214 

Bohemia, 163 

Bolivia, 144; products of, 197; 
201 

Bolshevism, 76 

Bordeaux, 65 

Boycott, 77 

Bradford, 43 

Brazil: 4, 10, 27; ore-beds of, 
48; 49, 57, 65, 113, 117, 185 

Brazilian Preference, 216 

" Britain's Coming Industrial Su- 
premacy," by J. Ellis Barker, 55 

British Africa: cotton production 
in, 27; 101 

British Columbia, 51 

British Empire, trade policy of, 88, 
89, 90-109 

British Italian Corporation, 104, 
105 

British Labor Mission, 45, 46 

British-Paraguayan Treaty of 
1884, quoted, 80 

British Trading Company, 103 

British West Indies: cotton pro- 



344 



INDEX 



duction in, 27; 114; 237 et seq. 

Bryan, William Jennings, atti- 
tude of, toward Santo Domingo 
question, 245 

Buchanan Treaty, 114 

Budget of 1919, The, 98, 99 

Buenos Aires, 9, 114, 121 

Bulgaria, 83, 170 

Bureau of Foreign and Domestic 
Commerce, statistical table of 
the, 12, 13 

Burke, Edmund, quoted on Eng- 
land's trade, 90 

Butterworth, Benjamin, 260 



Cacao, 188 

California, oil reserves in, 53 

Calvo Doctrine, 298 

Canada: 10, 31; in relation to 
tariff question, 87 et seq.; 93, 
97, 99, 100, 112; relation of nat- 
ural resources of, to foreign 
trade, 247 et seq. 

Canadian Reciprocity Agreement, 
115, 116, 123 

Canadian-West Indian Trade 
Agreement: 239; leading points 
of, 240, footnote 

Cargo-carriers, 140-152 

Carnegie, cited on Great Britain's 
ore supplies, 56, 57 

Caribbean Commerce, 232 et seq. 

Cattle: as a source of prosperity, 
25; 26, 119; Brazilian, 188 

Central America, 113, 114, 242 

" Central Europe," translation by 
Christobel M. Meredith, of Nau- 
mann's "Mittel Europa," cited, 
160 

Cereals, effect of war on produc- 
tion of, 22 et seq. 

Cerro de Pasco, 195, 229 

Chamberlain, Joseph H.: attitude 
of, toward foreign trade, 91 et 
seq.; quoted, 92, 93, footnote; 
Austin, budget of 1919, 98 



Chattanooga, 9 

Chemicals, 132 

Chevalier, Michel, quoted on pro- 
ductive power, 37 

Chicago, 9 

Chile: 9, ore-beds of, 48; 51, 103, 
194, 195, 201 

China: cotton production in, 27; 
in relation to ore, 48; corre- 
spondence relative to, and the 
Pacific, 336-342; the question 
of, 277; economic study of, 278 
et seq. 

Chuquicamatu copper, 229 

Civil War : condition of foreign 
trade at close of, 14; trade 
treaties after. 111 et seq.; mer- 
chant marine at time of, 142 

Clay, Henry: quoted on industrial 
progress, 37; attitude of, toward 
South American countries, 214 

Cleveland, Grover, 112, 302 

Coal: transportation of, 19; 
world's, reserves, 48 et seq.; in 
France, 60, 61 

Coats, P. H., 248, footnote 

Cobden, Richard, quoted, 47 

Cobden Treaty (Anglo-French) : 
69; quoted, 80, 81 

Coffee, Brazilian, 188 

Coke, Thomas, 234 

Colombia: 4, 49, 53, 144; products 
of, 198, 199 

Combinations, export, see Webb- 
Pomerene Act 

Commerce: the diplomacy of, 62- 
73. See Foreign trade 

Consortium, Chinese, 288; 305 

Constantinople, as an international 
port, 168 et seq. 

" Contemporary Politics in the Far 
East," by Prof. Stanley K. 
Hornbeck, 287 

Continental Congress, 66, 67 

Conyngton, Mary, " Effect of the 
War upon the Employment of 
Women," cited, 44 



INDEX 



845 



Copper, productive, areas, 50 et 
seq. 

Corn: relation of to foreign trade, 
24, 25; duty on, proposed by 
Chamberlain, 93, footnote 

Cornwall, 57 

Costa Rica, 144 

Cotton: transportation of, 10; as 
a factor in foreign trade, 26 et 
seq.; Asia Minor as a possible 
producer of, 28, 29; areas of the 
world, 27-29; 87, 145, 162; in 
Brazil, 188 

" Course of Political Economy," 
Chevalier, quoted, 37 

Cuba, 48, 49, 123, 234 et seq. 

Cuban Constitutional Convention, 
123 

Cuban Reciprocity Treaty, 114, 
115, 123 

Cyprus, 28 

Czecho-Slovak State, 163 

Dairy produce, export prospects of, 
26 

Dakota, 10 

Deere, John, effect of, on trade 
expansion, 13, 14 

De Forrest, David V., 121 

De Mille, James, "The Dodge 
Club," quoted, 62 

Denmark, 144 

Department of Agriculture: esti- 
mate of, on food wastage, 21; 
cited on cattle, 25, footnote; 32 

Dexter, Timothy, 233 

Dingley: tariff, 113; Act, 114 

" Diplomacy of the United States," 
by Theodore Lyman, quoted, 111 

Disraeli, Benjamin: definition by, 
of trade diplomacy, 66 

"Dodge Club, The," by James de 
Mille, quoted, 62, 66 

Drago, Dr. Luis M., 298 

Dumping in South America, 222 

Dutch East Indies: cotton produc- 
tion in, 27 



Dyes, 132 

Ecuador: industrial, 197; 201 

" Effect of the War upon the Em- 
ployment of Women in Eng- 
land," by Mary Conyngton, 
cited, 44 

Efiiciency, machinery and national- 
ized, 33-46 

Egypt, cotton production in, 27 et 
seq. 

Elgin, Lord, 68 

Elgin-Marcy Treaty, 111, 259 

Emerson, Ralph Waldo, cited, 37 

England : industrial organization 
of, 33-36; prohibition in, 39 et 
seq.; status of industrial woman 
in, 43-46; tin-plate industry in 
52; object sought by, in Me 
thuen Treaty, 63 et seq.; 65, 71 
82, 86; trade policy of, 88, 89 
£0 et seq. See also British Em 
pire and Great Britain 

Entente control, 77 

Export taxes, British, 100, 101; 
South American, 184 et seq. 

Farmer, American: as a business 
man, 20 et seq. 

Favored Nations, European con- 
struction, 78 et seq.; American 
construction, 120 et seq. 

Federal Reserve Act, 17 

Federal Trade Commission, 133 et 
seq., 318 

Ferrero, cited, 36 

Food, wastage of, in United 
States, 21, 22 

Foreign Intelligence Bureau, 106 

Foreign trade: defined, 3-18; ef- 
fect of Great War on, 4 et seq.; 
relation of, to domestic prosper- 
ity, 11 et seq.; table showing 
relation of, to internal trade, 12, 
13; condition of, at close of 
Civil War, 14; the farm in, 19- 
32 ; cattle as a factor in, 24, 25 ; 



346 



INDEX 



cotton in relation to, 26 et seq.; 
diplomacy of, 62-73; economic 
league in relation to, 74-89; 
boycotts and, 77; British, pol- 
icy, 88-109; policy of the 
United States, 89; Australia 
and, 93; and Canada, 93; key to 
British, policy, 109; United 
States and, 110-139; German, 
158 et seq.; relations with Rus- 
sia and near East, 168-182; 
South America and, 183-199; 
attitude of Blaine toward, 214; 
in Caribbean, 232-247; relation 
of Canada's natural resources to, 
249 et seq.; Japan and, 265- 
276; tables showing shifting of 
South American, 221, 222; 
China and the Pacific, 277-290 

Foster, John W., 113 

France: agricultural area of, 30; 
industrial women in, 42; ore re- 
sources of, 48; 66, 70, 71, 82, S3, 
114; factors in industrial recon- 
struction of, 153 

Frankfort, Treaty of, 7& 

Franklin, Benjamin, 184 

Free trade, British Empire and, 
90-109, passim 

Frelinghuysen, Secretary, quoted 
on favored nations, 122, 123 

Galveston, 10 

Garfield, President, 302 

" Geography of the World's Agri- 
culture," cited, 26 

George, King, attitude of, toward 
liquor, 40 

Germany: economic attitude of, 
toward Asia Minor, 28, 29; ore 
resources of, 48 ; 60 ; attitude of, 
toward commercial treaties, 68, 
69; 71; attitude of, toward tar- 
iff, 82 et seq.; 113, 119, 144, 160 
et seq., 173 

Ghent, Treaty of, 122 

Glasgow, 57 



Grant, Ulysses S., treaty of, with 
Mexico, 112 

Great Britain : dependence of mills 
of, on United States cotton, 27; 
ore resources of, 48; iron and 
steel industries of, 57 et seq.; 
71, 144; control of South Amer- 
ican trade by, 206; trade of, 
with China, 281 et seq. See 
also British Empire and Eng- 
land 

Greece, 83, 144, 172 

Haiti, 234, 236 

Haitian Fiscal Protectorate 

Treaty: 246; text of, 332-336 
Halsey, Frederick M., 207, footnote 
Hanseatic Republic, 144 
Harrison, President, 113 
Hawaiian Reciprocity Treaty, 112, 

123 
Hay, John: open door policy of, 

283; letter of, on policy, 336, 

337 
Hitt, Robert R., 260 
Holland, 144, 165 
Honduras, 144 
Hornbeck, Prof. Stanley K., 287, 

footnote; 303 
Hungary, 163 

Hurley, E. N"., 148, footnote 
Hussey, 14 

Imperial War Conference, 96 

Imperial Preference, see British 
Empire, trade policy of 

India: cotton production in, 27; 
31, 36, 57, 60, 97, 175 

International Institute of Agricul- 
ture, Rome, 32 

Investments, British in South 
America, 207; U. S. in South 
America, 229, 230 

Iowa, 7 

Iron: Lorraine, 60; tariff on, 84 
et seq.; Canadian, 256; Brazil- 
ian, 189; Chilean, 195 



INDEX 



347 



"Iron Ore Resources of the 

World," cited, 47 
Ishii, Kikujiro: agreement of, with 

Lansing, correspondence, 339- 

342 
Italy, 10, 82, 83, 144, 105, 165 
Italians in South America, 204 

Jamaica, 42, 97, 238 et seq. 

Japan: cotton production in, 27; 
70, 78, 112, 144; study of indus- 
trial, 265-276 

"Japan: Trade during the War," 
quoted, 274, 275 

JeflFerson, Thomas, attitude of, on 
reciprocity, 110 

JugQ-Slavia, 170 

Kansas City, 10 

Kasson, John A., 114 

Knox, Secretary: quoted on com- 
mercial discrimination, 128, 
129; 178; quoted, 273; 295 

Krupp, Dr. Gustav; 158; quoted, 
159 



Lansing-Ishii Agreement : 285, 
286, 288; text of, 339-342 

Lansing, Robert, quoted on loans 
to China, 295 

Laurier, Sir Wilfrid, 260 

Law, Bonar, and England's tariff 
policy, 94 

League of Nations, 77 et seq., 305 

Lee, Arthur, 67 

Leeds, 43 

Leeward Islands, cotton produc- 
tion in, 28 

Liberia, 144 

List, Friedrich: attitude of, to- 
ward Methuen Treaty, 66; 
quoted, 111 

Liverpool, 10, 57 

Livestock, production of, 22 et seq. 

Lloyd George, David: attitude of, 
toward public houses, 40; in re- 



lation to foreign trade, 91; 100, 

101 
Lorraine, 61, 121 
Luxemburg, 48 
Lyman, Theodore, quoted, 111 

Madagascar, 155 

Maine, 48 

Magellan Straits, 187, 195 

Malay Straits, 52, 57 

Manganese, sources of, 50; Brazil' 
ian, 189; Russian, 175 

Marco Polo, 180 

Marcy, Secretary, 68, 112 

Maryland, 49 

McKinley, President, 114 

McKinley Tariff Bill: 112, 113; 
text of reciprocity sections, 
322-331 

McCormick, Cyrus, 14 

Meat, production of, see Livestock 

Mecklenburg-Schwerin, 144 

Megata, Baron, 287 

Methuen Treaty: 63 et seq.; mod- 
ernized application of, 86 

Mexico, 4, 10 

Mill, John Stuart, on free trade, 
87 

"Mittel Europa," by Friedrich 
Naumann, cited, 160 

" Monroe Doctrine and The Can- 
ning Myth, The," by Charles H. 
Sherrill, 207 

Moore, "International Law Di- 
gest," 123, footnote 

Morocco, 154 

Naumann, Friedrich, Mid-Euro- 
pean scheme of, 159 et seq. 

Newfoundland, ore-beds of, 48, 49 

New South Wales, wool supply, 60 

New Zealand, 97 

Nile, cotton growing on the, 27, 
28 

Nitrates, 185; Chilean, 194, 224 

Nova Scotia, 256 

Norway, 83, 144 



348 



INDEX 



Ohio, coal of, 49 

Oil, industrial uses of, 52 et seq. 

Oliphant, Lawrence, 68 

Oliver, Jolin, effect of, on trade 

expansion, 14 
Oporto, 65 

Ore, world's, resources, 47 et seq. 
Osborne, John Ball, 123, footnote 

Palmerston, Lord, quoted on com- 
mercial diplomacy, 67, 68 
Panama Canal, 9, 51 
Panama Canal Act, 143 
Paraguay, 144, 193 
Paris, industrial women in, 43 
Paris Pact of 1916, The, 74 et seq. 

Patagonia, agricultural reclama- 
tion of, 204 

Patent Acts, Lloyd George in re- 
lation to, 101 

Patten, Prof. Simon K, 244, foot- 
note 

Payne- Aldrich Act, 117-119, 130 

Peace Conference, 286 

Peace Treaty, 305 

Perry, Commodore, 267 

Persia, 71 

Peru, 9, 25, 51, 195, 201, 202 

" Petroleum Resources of the 
United States," by M. L. Requa, 
cited, 54 

Pittsburg, industrial area of, 49 

Piatt Amendment, 123 

Poland: economic development of, 
88; 178, 179 

Porto Rico, 234, 236 

Port Said, 42 

Portugal: Methuen Treaty and, 
64, 65; 83 

Potash, 133 

Pratt, Dr. E. E., quoted on crops 
in relation to prosperity, 29, 30 

Price Lists, 136 

Prohibition, in England, 39 et seq. 

Protection, British Empire and, 
90-109, passim 

Prussia, 144 



Quesnay, 76 

Railway Rates, export, British, 
100; U. S., 137 

Reciprocity Agreement of 1911^ 
The, 260 et seq. 

" Reciprocity and Commercial 
Treaties," 80, footnote 

" Reciprocity Treaties, Favored 
Nation Qauses," John Ball Os- 
borne, 123 

" Reforming the Liquor Trade in 
Great Britain," 42, footnote 

Requa, M. L., " Petroleum Re- 
sources of the United States," 
cited, 54 

Rio de Janeiro, loan, 228 

Rittman Process, 53 

Roosevelt, Theodore, negotiation of 
treaty with Cuba by, 114 

Root, Elihu: quoted on commercial 
intercourse with South America, 
214, 215; 217; negotiation of 
Santo Domingo debt by, 245; 
264, 284 

Root-Takahira Declaration, 338- 
339 

Rubber, Brazilian,- 187 

Rumania, 83, 170, 171 

Russia: cotton production in, 27, 
28; ore production in, 50; 52, 
71, 83, 87, 88, 154 



San Paulo loan, 228 

Santo Domingo: 113; management 
of by United States, 244 et seq. 

Seaman*s Act, 149 

Serbia, 83 

Shanghai International Commis- 
sion, 289 

Sherrill, Charles H., author of 
" The Monroe Doctrine and the 
Canning Myth," 207 

Shipping Board, 147 et seq. 

Shipping Law, 147 

Siberia, 180 



INDEX 



349 



Silk, Italian, 165; Japanese, 268; 
Chinese, 278 

Smith, Adam, attitude of, toward 
Methuen Treaty, 65, 66 

Smyrna, 71, 72 

South Africa, 60, 97, 99 

South America: 31, 113, 154; as a 
commercial and economic field, 
183-199; population, 186; as a 
market for Europe, 200-213; 
German colonization plan in, 
210-213; as a market for the 
United States, 214-231 

" South America an Export Field," 
by Otto Wilson, 201-202, foot- 
note 

Spain: 10; ore resources of, 48; 
57, 83, 87; Arthur's Treaty 
with, 112; 144; economic pol- 
icy of, 184 

Spanish West Indies, 113 

Spencer, Herbert, advice of, to 
Baron Kaneko on Japanese trade 
policy, quoted, 266, 267 

Stamp, Dr. J. C, 287, footnote 

Straits Settlements, 101 

Sudan, cotton growing in the, 27, 
28 

Sugar, value of Cuban production, 
235, 236 

Sweden, 57, 144 

Switzerland, 83 

Taft, President: 130, 143, 177, 
260; Central American policy 
of, 244, 245; attitude of, toward 
American foreign investments, 
295; 303 
Takahira, Baron: 284; letter of, 

to Root, 338-339 
Tariff Act of 1913, The, 120 
Tariff Commission, 130, 318 
Tariff: maximum and minimum, 
schedules, 81 et seq.; English, 
82; French, 82; German, 82; 
Italian, 82; Spain's attitude to- 
ward, 87; Australia and the, 



87; Canada and the, 87; Russia 
and the, 87, 88; Balfour and 
the, 94; Cleveland and the, 112; 
McKinley and the, 114; attitude 
of Jefferson toward, 110; Grant 
and the, 112; Russian trade 
treaties under dual, 176 

Temperament, in trade, 106 

Texas, 10 

Textiles, tariff on, 84, 85 

Tin, from Bolivia, 51; 197; in 
China, 278 

Ting, V. K., 279, footnote 

Tobacco, value of Cuban produc- 
tion, 236 

Toronto Geological Congress 19X2, 
The, 49, footnote 

Trade, balance of, 16 

Trepoff Treaty, 169 

Tunis, 60, 154 

Turgot, 76 

Turkestan, 28 

Turkey, 154, 168 et seq. 

Ukraine, The, economic importance 
of, 179 

Underwood-Simmons Act, 143 

United States: benefits of foreign 
trade to, 8 et seq.; evolution of 
export trade of, 13 et seq.; food 
wastage in, 21, 22; distribution 
of ore in, 48 et seq.; resources 
of, 53, 54; influence of Paris 
Pact of 1916 on, 76; trade pol- 
icy of, 89; foreign policy of, 
110-139; revival of, merchant 
marine, 140-152; relation of, to 
Continental Europe, 153-167; 
relation of, to Scandinavian 
group, 165; trade relations of, 
with Russia and the Near East, 
168-182; economic destiny of, 
in Caribbean, 232-247; trade re- 
lations of Canada and, 259 et 
seq.; export of capital by, 284 

"United States in the Twentieth 
Century, The," by Pierre Leroy 



350 



INDEX 



Beaulieu, quoted, 140, 141 
Uruguay, 193 

Valparaiso, 43 

Venezuela: 4; products of, 198 

Virgin Islands, 232 

War, The Great: eflFect of, upon 
foreign trade, 4 et seq.; and in- 
dustrialism, 39 et seq.; effect of, 
upon France's raw materials, 
60; effect of, upon trade diplo- 
macy, 72; economic alliances in 
relation to results of, 74 et seq.; 
tariff system at outbreak of, 81; 
British trade before and after, 
91 et seq.; 125; effect of, upon 
American tonnage, 141 et seq.; 
expanded economy a consequence 
of, 153; 226; effect of, upon 
Japanese commercial activity, 
271 et seq.; effect of, upon for- 
eign trade relations, 309; as a 
commercial educator, 320 

Washington. See United States 

Water power, of the U. S., 55, 56; 
of Canada, 55 

Webb-Pomerene Act, 133 e* seq. 

West Indies, 10, 25, 114 



Wheat, varying values, 7; statis- 
tics of production and export, 
22 et seq. 

Whitley, 14 

Wilson, James, 24, 25 

Wilson, Otto, 201, 202, footnote 

Wilson, President: cited on for- 
eign trade, 1 1 ; attitude of to- 
ward Paris Pact, 76; action of, 
in Santo Domingo matter, 245; 
in relation to Haitian Treaty, 
246; 288; attitude of, toward 
foreign investments, 295; quoted 
on Chinese loan, 302 

Wilson Tariff Act, 113, 117 

Witte, Count Sergius de: influence 
of, on Russian industrial life, 
87, 88; 175, 182 

Woman, status of industrial, 43- 
46 

Wool, share of U. S. in world pro- 
duction, 55; England's supply, 
60; South American sources, 
191, 193, 195 



Zinc, resources of U. S., 51 
Zollverein, German, 82; South 
American, 201 



>' 



